2021 was a record-breaking year for global initial public offerings, but amidst cooling markets and rising inflation, can we expect the trend to continue to gather momentum in 2022? 

In the wake of the Covid-19 pandemic, the widespread acceleration of digital transformation created a favourable environment for many tech startups to experience unprecedented growth, leading to a flurry of floatations occurring throughout late 2020 and 2021. 

(Image: Bloomberg)

Whilst 2020 made for the most prosperous year for IPOs since the global financial crisis of 2008, 2021 left all prior years in its dust, accumulating more than $600 billion in proceeds throughout the year. 

Although Q4 of 2021 was impacted by record-breaking rises in inflation rates around the world, there’s optimism that 2022 can bring more IPO joy for markets. 

(Image: Crunchbase)

As the chart above shows, venture capital funding for ventures has grown significantly throughout the first three quarters of 2021, indicating that more startups have gained access to the windfall they may need prior to going public. 

Significantly, late-stage funding volume grew fastest across the past year, which may help to pave the way for future listings. 

So, could 2022 become another blockbuster year for initial public offerings? The answer is likely to come from the companies that have already listed in recent months: 

Early Indications Suggest a Cooling IPO Market

It’s been a busy year for public listings, but how long can the good times continue to roll? Both SPACs and more traditional initial public offerings have underperformed across listings whilst inflation is beginning to pave the way for interest rate hikes that could impact valuations. 

The impact of inflation on the IPO market will be largely down to the severity of inflation as rates continue to rise across 2022 and the actions of central banks as they take action in mitigating the impact of the rate rise. Upon the Federal Reserve’s December announcement of 2022 rate hikes, the stock market remained relatively unscathed - indicating that the move was anticipated. 

"I think you're going to see a gradual softening of the market," explained EQT Ventures partner Ali Mitchell. "There's an enormous store of companies, but 2021 has been a peak."

Blockbuster IPOs May be Around the Corner

There are plenty of reasons to remain optimistic for the future of the IPO market, and with a high volume of exciting listings on the horizon, we may be set to see record-breaking trends continue through 2022. 

“From all the conversations I am having with the industry, the primary markets or IPOs will continue to hold strong so we continue to be very bullish in that business,” said Sreekanth Nadella, CEO of KFin Technologies. ”There are scores of IPOs already approved foreign listing and several of them pending for approvals so we do expect continuation of the frenzy we have seen in 2021 into 2022 as far as the IPO is concerned.”

In fact, 2022 looks set to begin with a bang as Reddit appears to be readying its hotly anticipated IPO. The company initially filed for its IPO on December 15th 2021 and was expected to go public in Q4 of the same year. However, unstable market conditions have pushed the debut back to early 2022 - with an NYSE listing likely in Q1. 

The company itself was last valued at $10 billion in a private fundraising round in August 2021, but Reddit has been aiming for a market capitalization of closer to $15 billion when it debuts. 

Given Reddit’s relationship with its r/WallStreetBets forum, which has been a haven for meme-based investments in recent months, the platform may capture the imagination of retail investors to cause a stock rally once again. 

We May See Some Exchanges Outperform

Another reason why 2022 may be a bumper year for IPOs is down to the performance of reinvigorated exchanges like the London Stock Exchange, which spent much of December revising listing rules to create a more lenient and attractive environment for startups to go public. 

According to Maxim Manturov, head of investment research at Freedom Finance Europe, the LSE’s new listing regulations are likely to attract a range of exciting startups throughout the coming months, including that of The Hut Group Beauty, Raspberry Pi and Huel, which can all be followed in 2022. 

“Huel can be considered one of the UK's most promising start-ups, which has a huge social media audience, allowing the company to appeal to young consumers who place a high value on good nutrition and fitness,” Manturov added. 

Although the 2022 IPO landscape will face plenty of fresh economic challenges, it doesn’t mean that the year will see a slowing of revenues generated through listings. With startup funding reaching new highs and exchanges continually working to accommodate more fledgeling companies, the coming months could yet echo the record-breaking debuts of 2021.