The world of startups is a dynamic and exciting one, with new companies emerging every day. One of the most significant milestones for any startup is going public through an initial public offering (IPO). However, recent research has shown that startups that go public experience a more significant decline post-peak compared to the Nasdaq.
According to a comprehensive analysis conducted by SharesPost, a leading provider of private market liquidity, startups that go public experience a decline of 2.5 times more than the Nasdaq post-peak. The study analyzed the performance of 100 startups that went public between 2010 and 2018 and compared it to the Nasdaq Composite Index.
The study found that the average peak-to-trough decline for the 100 startups was 35%, while the Nasdaq only experienced a decline of 14%. The study also found that the decline for startups was more prolonged, with an average duration of 13 months, compared to the Nasdaq’s average duration of six months.
The reasons for this decline are multifaceted. One of the main reasons is that startups are often overvalued when they go public. Investors are willing to pay a premium for shares in a company that they believe has significant growth potential. However, once the company goes public, the market may not be as optimistic about its prospects, leading to a decline in share price.
Another reason for the decline is that startups often have a limited track record of financial performance. Investors may be willing to overlook this when the company is private, but once it goes public, they expect to see consistent growth and profitability. If the company fails to deliver on these expectations, investors may lose confidence and sell their shares.
The SharesPost study also found that the decline in share price was more significant for companies that went public through a direct listing rather than a traditional IPO. Direct listings allow companies to go public without raising additional capital, but they also lack the support of underwriters and may not receive as much attention from investors.
Despite the challenges, going public can still be a significant milestone for startups. It provides access to capital, increased visibility, and can help attract top talent. However, startups need to be prepared for the challenges that come with going public and have a solid plan in place to manage the post-peak decline.
In conclusion, the SharesPost study highlights the challenges that startups face when going public. While the decline in share price post-peak can be significant, it is not necessarily a reflection of the company’s long-term prospects. Startups need to be prepared for the challenges that come with going public and have a solid plan in place to manage the post-peak decline. With the right strategy and execution, startups can still achieve success as a public company.
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- Source: https://zephyrnet.com/the-biggest-startup-ipos-are-down-2-5x-more-post-peak-than-the-nasdaq/