Question

Explain why the number of IPOs in the United States has declined since 2000. (Not 2020)

Answer 1

Part of the downturn may represent the collapse of the dot-com bubble during the first years of the new millennium. Many would argue, however, that a lot of those firms would not have gone public in the first place, and that comparing against the height of the bubble is wrong-headed.

What's more, IPOs today have different characteristics than they were in 1996. Today, according to one panelist, the total size of an IPO is $192 M compared to only $62 M in the earlier period. Investor liquidity, brand building and market discovery are the primary reasons for IPOs as well as, one panelist observed, the need to use publicly tradable stock for acquisitions

For smaller cap companies the fall in IPOs was especially pronounced. Post-IPO success can be a bit of a gamble, one panelist said, and results can be frustrating for some smaller companies. Most smaller companies have a tougher time as public firms, suffering from far less analysis and less market participants, leading to more difficulties in capital raising and less liquidity.

"Since 2000 , the average annual number of IPOs in the 1990s has been 135 – less than one-third of the current annual number of IPOs – 457. This decline occurred despite the fact that, over the same period, there was no downward trend in the development of new companies. Even conventional economic causes, such as fluctuations in the demand for capital by businesses and shifts in investor sentiment, can not explain the significant decline .... The substantial drop in the number of IPOs in the United States is driven largely by the absence of small IPOs.

In some degree, some panelists involved in the dialog attributed the downturn largely to the extension of the public timetable: there is now more anxiety about pressuring businesses to go public too early, and less established firms may not appear to be on the receiving end of calls from investment banks, because they may not yet be considered the company's caliber.