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The IPO market ‘is thawing,’ EquityZen co-founder says

EquityZen Co-Founder and Chief Strategy Officer Phil Haslett joins Yahoo Finance Live to discuss the state of the U.S. IPO market and startups in the private market.

Video transcript

- Well, the U.S IPO market is beginning to thaw after a months-long drought. Joining us to discuss that, is EquityZen co-founder and Chief Strategy Officer, Phil Haslett.

Phil, let's start with the macro picture here. Because you know, last week we were talking about Instacart confidentially filing. It was sort of a surprise for us, sort of in the environment that we are in right now. With concerns around higher rates, especially these high growth companies. What's your sense about how-- the impact this is having on the IPO market?

PHIL HASLETT: Yeah, certainly a positive development to hear from Instacart. Probably one of the first companies we've heard of, even in months, that's kind of a large tech company that wants to tap the markets. But I was just checking my notes, and I think this week we have approximately zero IPOs slated for the week.

So the market is thawing, but I think it's going to take a little bit of time before we see some more activity. It's really a perfect storm of kind of global macro data, as you've alluded to in China. Ongoing crisis in Ukraine and Russia.

And a lot of question marks on inflation. It's just kind of leading companies to wait a little bit longer. But hopefully we'll see the bottom soon. And I think that's what investors are waiting for.

- Phil, we spoke, I believe, last time in April. At the time you were talking about the idea of companies tagged as new-nicorns. Unicorns, that are kind of these companies that are possibly late stage, that might be looking to go IPO but might have to look for other options right now.

What are those companies doing if it is indeed the case that what you're trying to sideline yourself through, what has been pretty remarkable volatility this year?

PHIL HASLETT: Yeah, absolutely. I think what we kind of forecast to happen has really played out. You've seen a lot of layoffs that have been announced over the last month or so. You've seen venture capital investors reaching out publicly kind of to their portfolio companies, saying now is the time to conserve cash.

Growth is secondary to being able to reduce your burn rate. And we're seeing that happen across a lot of those 2021 unicorn companies that raised at real sky-high valuations.

A lot of the 2021 IPO cohort are down 40% or 50%. I was looking at Coinbase, I was looking at Robinhood, HashiCorp, TOAST. You're looking at companies down maybe 30% or 40% off of their IPO prices.

So it's just really an environment where I think those private companies that raised last year, are trying to come through ways to conserve cash, maybe raise flat rounds. This is one of those environments where flat is the new up, to try to kind of keep them going. So they can kind of come out the other side, once we realize the bottom here in the public markets.

- Or in the case of Instacart, just come out and slash your valuation, right? Now even in a funding round. I mean, Phil, that begs the question, what's actually happening on the private side of things?

I'd imagine a lot of startups that were considering coming to the public markets this year, maybe reconsidering that. But is the same slowdown happening in the private side?

PHIL HASLETT: Yeah, so at EquityZen we have a really good lens into what's happening in the private markets. Typically you would only see announcements about a new funding round, but you don't really know what happens in the interim, the 12 or 24 months that go in between.

We have some really good visibility. What we have seen is a lot of secondary trades and companies, that maybe 20 or 40% below prices we saw in Q4 of 2021. I imagine that's going to continue.

We're also seeing more and more companies reach out to us proactively, to kind of think about liquidity for their employees in the private markets. Given that they may have maybe delaying their IPO plans that they had slated for 2022. I expect that to continue.

And then the last thing that I kind of anticipate seeing within private tech and even public tech, is that once you see some private equity investors coming in and spotting some opportunities to buy companies they think are at great prices. I think that may be kind of the indicator that we've hit the bottom on valuation.

And you'll start to see investors get a little bit more comfortable about investing in IPOs. Which will lead to companies being more comfortable coming to the public markets. So that's what I envision seeing happening soon.

- Hey Phil, when we talk about the 2021 companies, a lot of big names that came to market. You mentioned earlier Coinbase, Robinhood. We've also seen a number of other high profile companies, Rivian, DD, kind of go public last year.

Look, these stocks are down colossally, right? You know, Coinbase down 75% year to date. But how much should they care about that? Because the whole point of the capital raise in 2021, was get in while the market was hot.

I mean, do you think the CFOs in the offices are now looking at their stock prices and going well, we deserve this, but it's OK. Because we did the capital raise already.

PHIL HASLETT: You hit the nail on the head. I think the CFOs and those management teams succeeded in raising capital, and bringing a lot of cash into the coffers. Which is great. However, they still have to manage kind of the emotional roller coaster or financial roller coaster, that their employees and their investors have gone through over the last nine months.

So long as these companies kind of continue to stick to their long term vision of what they're trying to build. I think they'll be all right. But as you know, as a public company, you're subject to such more scrutiny than you would be as private ones.

So while I'm sure the CEOs and CFOs at Coinbase and Robinhood and these companies, are happy they raised the money. They are also kind of having to answer these quarterly calls, that I'm are really difficult. Where investors are asking about what changes they're going to make, maybe where they're going to shed some costs.

And so if you're a private company, you're probably happy you didn't do that. But at the same time, you're hoping that you'll still be able to tap the capital markets over the next six to 18 months.

We constantly talk about how much dry powder there is from these venture capital firms and private equity firms. But not many of them are stepping up to the plate right now, to actually make investments. So I think we are also kind of waiting for that signal as well, to kind of continue to prop the markets back up.

- Yeah, I'd be curious to see how many other startups come forward, like Instacart, and say, look, maybe our valuation is too high in the prep to go public. But Phil, it's always good to get your perspective. Phil Haslett, EquityZen co-founder and Chief Strategy Officer.

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