Sentiment Shapes Success ? How Market Optimism Is Driving A New IPO Wave
Patric Hellermann
Your first investor in AEC, construction, 3D, design technology ? General Partner @ Foundamental
This week on Practical Nerds - tl;dr:
Economy and trade are nothing but sentiment. How you value an asset today, how you value it tomorrow - it's nothing but sentiment.
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Market sentiment shifts dramatically post-US election as investment confidence returns
We've spent much of 2023 and early 2024 advising founders to prepare for a market where capital isn't readily available. But the winds are shifting. Recent weeks have shown a decisive turn in market sentiment, particularly following the US election results. This shift isn't just about politics - it's about certainty and confidence returning to the markets.
The impact of sentiment on business decisions can be dramatic. A founder shared a conversation with their customer, a major general contractor, who planned to either cut 10% of staff or hire 25% more based solely on the election outcome. While such reactions might seem extreme, they illustrate how sentiment drives real business decisions.
This isn't just anecdotal. We're seeing sentiment manifest in tangible ways across the market. Investment banks are predicting a surge in tech IPOs for 2025, suggesting a broader shift in market confidence. The cycle of positive sentiment feeding positive outcomes appears to be gaining momentum.
Databricks rumored $1B raise at $55B signals return of mega-rounds
The most striking example of renewed market optimism comes from Databricks. The company is reportedly in discussions for a $1 billion financing round at a $55 billion valuation. With estimated annual recurring revenue of $2.5 billion, this implies a multiple of 22x ARR - a level we haven't seen for unprofitable companies in recent years.
This valuation multiple is particularly notable when compared to public market peers. Snowflake, Databricks' primary competitor, trades at roughly 14x ARR. The willingness of sophisticated investors like Thrive Capital to pay such premiums suggests strong confidence in both Databricks' growth trajectory and the broader IPO market's appetite for high-growth tech companies.
This deal, if confirmed, would mark a significant shift from the multiple compression and down rounds we've witnessed over the past three years. It signals that investors believe the public markets will support similar valuations, or that growth will outpace any multiple compression.
Waymo's $5.6B raise and Zepto's billion-dollar year show renewed tech optimism
Beyond Databricks, we're seeing other massive funding rounds that would have been unthinkable just months ago. Waymo raised $5.6 billion at a $45 billion valuation - a deal that would have seemed impossible last year outside of OpenAI and its direct competitors.
In India, quick-commerce company Zepto has raised over a billion dollars in 2024 alone, with rumors of additional rounds in the works. The company has completed multiple major funding rounds this year, including a $660 million raise just three months ago.
These deals aren't isolated incidents - they're part of a broader pattern of renewed confidence in tech investments. The willingness to deploy large amounts of capital at ambitious valuations suggests investors believe we're entering a new phase of the market cycle.
Major investment bank predicts flurry of US tech IPOs in 2025
A major bulge bracket investment bank recently shared their prediction for 2025: expect a surge of tech IPOs in the United States. This forecast gains credibility when viewed alongside current market activities.
The prediction follows a noticeable uptick in private market activity and comes at a time when significant capital has been sitting on the sidelines, primarily in treasury bonds. As one of our hosts noted, "The money was never gone - it was just parked." Now, that capital appears to be growing impatient for returns and seeking opportunities in the tech sector.
This shift could create a virtuous cycle: successful IPOs breed confidence, which in turn encourages more companies to go public. The combination of available capital and improving sentiment suggests 2025 could indeed see a significant revival in the tech IPO market.
Indian IPO market heats up with Swiggy's $1.4B IPO, the largest tech IPO globally this year
The global IPO landscape is already showing signs of life, with India leading the charge. This week alone saw two significant tech IPOs in India. Food delivery giant Swiggy completed a $1.4 billion IPO, valuing the company at approximately $12-13 billion. Notably, this represents the largest tech IPO globally this year.
This marks a remarkable shift for the Indian market. Just a few years ago, when Foundamental started, the narrative was that India lacked viable IPO exits for tech companies. Now, IPO discussions are commonplace, with a continuous pipeline of companies preparing to go public.
The success of these IPOs is creating a virtuous cycle, building expertise and confidence in the ecosystem. Growth investors and bankers now evaluate Series B+ companies through the lens of IPO readiness, typically assessing whether they could be public-ready within 18-24 months.
Mid-cap IPOs emerge as alternative to traditional growth rounds
A particularly interesting trend is emerging: mid-cap IPOs are becoming viable alternatives to traditional growth rounds. While tech IPOs are often associated with massive valuations, we're seeing successful public listings at valuations between $200-500 million.
BlackBuck's recent IPO at a $570 million valuation exemplifies this trend. As a B2B logistics marketplace, their successful listing demonstrates the public market's appetite for mid-sized tech companies, particularly in the logistics and supply chain sector.
This shift in thinking about IPOs not as final exits but as growth funding rounds is particularly relevant in markets where growth capital has been constrained. By going public, companies can access growth capital while providing liquidity to existing shareholders - even if only floating 20% of shares initially. This approach might particularly suit capital-intensive businesses in sectors like new-age cement or logistics, where traditional growth capital has been scarce.
Indian Construction-Tech IPOs on the horizon
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Companies mentioned in this episode
Databricks: https://databricks.com/
Swiggy: https://www.swiggy.com/
BlackBuck: https://blackbuck.com/
Waymo: https://waymo.com/
Zepto: https://www.zeptonow.com/
OfBusiness: https://www.ofbusiness.com/
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Tags
#IPO #Tech #VC #Funding #IndianTech #LogisticsTech #ConstructionTech #VentureFunding