Europe’s stellar VC-backed IPO year hides poor performance in public markets

Europe and Israel have seen an unprecedented flood of VC-backed listings in 2021, but poor performance in the public markets could threaten IPO activity in the coming months.

This year was one of rebound and recovery for IPOs following the pandemic-driven slowdown in 2020. A total of 142 European and Israeli startups went public through Dec. 6, raising €92.7 billion (about $104.7 billion) in aggregate, according to PitchBook data. Both figures are miles above last year’s numbers, representing increases of 149% and more than 780%, respectively.

In contrast to those impressive numbers, the post-listing performance of many of these companies has been disappointing: Two-thirds are now trading below their listing prices, as investors become more cautious toward highly valued startups.

The poor performers include some of Europe’s highest-profile venture-backed IPOs. Perhaps one of the biggest flops of the year, Deliveroo, is down 45% from its listing price of 390 pence per share, as of Tuesday’s close. Fintech giant Wise’s shares opened at 800 pence apiece in the UK’s first direct listing but now stand at around 750 pence.

The soaring levels of VC investments in European and Israeli startups have pushed valuations to record levels—which aren’t always well-received in the public markets. Between 2017 and 2021, the average pre-IPO valuation in Europe has gone from $141.6 million to $874.1 million, according to PitchBook data.

 

Some new issuers in recent months have decided to delay or downsize their IPO plans because of current market conditions. Language learning app Babbel was looking to go public in September at a €1.26 billion valuation but postponed just days before the planned listing. Swiss watch trader Chronext decided against its October IPO, citing adverse conditions for high-growth companies.

With late-stage capital and lofty valuations widely available in Europe and Israel, some startups may prefer to stay private longer rather than risk a cut in the public markets. That said, some VC-backed companies have seen stellar performance on the public markets in 2021. Shares in biotech startup Oxford Nanopore jumped by as much as 47% in its first day of trading on the LSE and are still trending upward. Cybersecurity firm Darktrace also saw its shares surge upon listing in April and was up by 59.4% as of Dec. 15.

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