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Startups are delaying their IPOs
Required revenue for startup IPO, why Klarna cancelled their IPO, and more...
SearchVentures
October 23, 2024
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Why startups are not going public
Startups are delaying their IPOs as the revenue required to do so has increased by 700% over the last decade.
What's causing the delay?
This Week’s Trends
Startups are pushing IPO dates
Why Klarna cancelled its IPO
€150 million follow-on fund and more
Read Time 4 minutes
The Startup Trend
Required revenue for IPO
The median required LTM (Last-Twelve-Months) revenue to hit IPO has jumped from $100 million in 2014 to over $700 million in 2024 (YTD)— a 700% increase over a decade.
> Startups are aiming for higher revenue figures before hitting IPO due to higher thresholds in public investors
> To secure a market cap above $5 billion, startups on average need to have $500 million or more in NTM (Next-Twelve-Months) revenue.
💡The shift in investor preference from growth to profitability due to the recent downturn has compelled startups to delay IPO listings.
Startup Feature
The startup that cancelled its IPO
Klarna, the Swedish-based ‘buy now, pay later’ fintech, was founded in 2005 and achieved a peak valuation of over $45 billion before recent struggles that have slashed this down to only $6.7 billion and forced Klarna to delay its IPO.
The three co-founders Sebastian, Niklas and Victor have turned Klarna into Europe’s largest fintech unicorn with over 90 million customers and 200 thousand merchants.
The Pressure of Venture Capital
Klarna’s success attracted massive venture capital interest. Sequoia Capital, SoftBank, and other prominent investors eagerly backed the startup with over $4.9 billion. However, this influx of capital brought with it an expectation for aggressive growth and profitability.
“We have to live with the reality that investors expect us to show a little bit more results here-and-now, rather than talking about the future.”
This pressure added as Klarna approached its planned IPO for 2021 during the start of the pandemic leading to rising interest rates and more cautious spending from consumers. This made it harder for Klarna to maintain its aggressive growth trajectory as sales volume declined and users were less willing to ‘buy now & pay later’.
“When you have investors, they are going to be looking for a return at the timing that works for them.”
Why Klarna Didn't IPO in 2021
Investors expected Klarna to go public at the peak of its valuation. Klarna's decision to delay its 2021 IPO was largely driven by the challenges in justifying their $45 billion valuation during a downturn. With rising credit losses and growing competition, Klarna still does not have a clear date for the IPO, aiming to avoid a drastic reduction in their valuation.
“We realized that rushing to IPO could hurt us long-term.”
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Cheers,
Odin Lund & Hari Mohandas
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