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The market for initial public offerings is crawling out of a two-year slumber, invigorated by the debuts of Reddit and Astera Labs. But most startups valued at $1 billion or higher won’t go public soon, predicts Accel partner Rich Wong.

Of the 1,200-plus private startups that now have this valuation, he estimated far fewer than 20% will end up going public in the next few years. Many of the rest may be sold or will just stay private for longer. That’s because they haven’t started to generate enough revenue—say, at least $250 million annually—or shown they’re close to turning a profit, two characteristics public market investors want to see. Plus, the market can only handle so many new tech listings a year.

“The IPO destination is going to be very much for a small minority of that 1,000-plus unicorns,” Wong said on a call with Morgan Stanley Managing Director Diana Doyle, streamed to The Information’s subscribers Tuesday.

The Takeaway

•Reddit, Astera pave way for ‘super busy’ 2025

•New listings should show at least $250 million in revenue

•Many high-valuation startups likely to continue to delay offerings

There’s a silver lining to his forecast. Wong, who led Accel’s investments in the now-public enterprise software companies Atlassian and UiPath, anticipates some of the startups that remain private will use the time to develop their businesses. Then they may debut in a few years as much stronger companies. That would repeat what happened in the 2010s when startups such as Zoom, Datadog and Slack waited to list until they were larger companies—and in Zoom’s case, were already profitable.

That said, some 15 to 20 tech companies will attempt IPOs this year, said Doyle, who is head of technology and equity-linked capital markets in the Americas at Morgan Stanley. She added, “2025 is going to be super busy.” Investors are interested in new tech listings as long as they can show healthy growth.

“Over 50% of the tech companies out there are growing below 10%; only 5% of tech companies are even growing more than 40%,” she said. “The biggest thing that’s missing from the public markets right now is growth.”

Wong and Doyle also spoke about opportunities for acquisitions of startups, including by newly public companies such as CrowdStrike and Atlassian; on whether artificial intelligence fever has started to ebb; and on private equity firms’ appetite for private tech startups.

The interviews have been edited for brevity and clarity.

What is the reaction from the venture capital community for these IPOs?

Wong: Reddit is a particularly positive example, given there haven’t been as many consumer IPOs over the past three to four years. There’s not enough data points to draw a full trend yet. But if you go back to Instacart and Klaviyo, venture-backed IPOs of last year, you’re starting to see a trend warming up.

The second half of the year and particularly 2025, I think you’re gonna start to see real momentum there if these names continue to trade as they have so far.

Why aren’t more companies thinking about IPOs this year?

Doyle: On the company side, many of the companies that planned to go public in 2023 or 2024, they raised money in 2020–21 at all-time-high valuations with the expectations at the time [that] they’d have three to four years of runway. Most of those companies have taken cost cuts [to extend the runway] by another 18 months, so there hasn’t been a real need for cash.

The second component is the private markets have been very healthy, [giving] many of these companies access to liquidity for early investors or for employees, so that they can buy time for the growth to stabilize and for the company to continue to build scale. Some of the other things that have held companies back from pulling the trigger, despite the fact that investors are willing to support these offerings, it’s just the valuation. Valuations have returned to more normal averages, especially in enterprise software, but they’re still challenging for some companies.

I think we’ll see 15 to 20 tech IPOs this year. 2025 is going to be super busy. Practically speaking, unless the company is already on file, it’s about a six-month preparation period from the time you decide to go public, getting through the whole process with the [Securities and Exchange Commission], meeting investors and getting ready to go. So that six months from now brings us basically to the election—there’s a narrow window, post election, before you get into the holidays. But for a lot of these companies, it’s a Q1 2025 target.

What are the companies you’ve been working with doing before the IPO market reopens?

Wong: In the roughly 18 years I’ve been in the industry, I’d say these companies are better managed than [at] any other point in terms of controlling their burn and making their capital last a long time. The vast majority of companies are not under cash pressure that we would have seen in previous cycles.

The market until very recently, until Q4 of ’23, has been kind of frozen. Only now are we starting to see the ice kind of crack, and you’re starting to see some of these late-stage rounds and activity come back in quite a bit of force.

Is it just AI companies that are able to raise those big rounds right now?

Wong: We’re seeing activity across the board, collaboration software, [application programming interface] companies, cybersecurity companies—those are some of the most active areas in addition to AI.

Even the high quality venture-backed businesses have either sold secondary or raised primary in a significant down round. How are companies thinking about their valuations and plans to raise capital publicly?

Wong: If you can grow a company at 30% to 40% year over year and approximately double every other year, you want to grow a little towards some of the peak 2020 and 2021 valuations.

At the same time, four years out from Covid-19, people are also coming to the reality that those zero-interest-rate multiples are probably not going to come back anytime in the near future. And so you just have to accept the reality of how the multiples have changed.

I make the observation that all of us as public stock investors—you accept it when there’s a correction and multiples change and your stock price may be down 50%, 60%. You realize that’s not a function of a company’s performance, but more the macro of interest rates and environment. Oddly enough, as private investors, it’s harder to accept or whatever reason. People are still mentally pegged to the last VC round.

What are the qualities of companies that are distinguishing themselves as IPO or public market ready?

Doyle: Ideally 30% to 40%–plus growth with revenue, for a traditional software company, $200 million–type plus. Investors want to see either profitability today or a real line of sight to profitability within the next, say, four quarters. They want to see companies that are a market leader and who offer something different. For companies that meet that profile, the investor enthusiasm is going to be highest, in addition to companies who have an AI direct story that investors can understand and articulate.

Wong: Less than 20%, maybe less than 10% of the so-called unicorns are realistically going to end up in the independent public market. There probably is a good substantial percentage that will end up selling to different acquirers. Is that 40%, 50%, 60% of that remaining base? And there’s a good 25% to 30% of those so-called unicorns that we all know in retrospect didn’t really make economic sense and were priced way above where they stood at that point. So I think the IPO destination is going to be very much for a small minority of that 1,000-plus unicorns.

If you think back to about a decade ago, Mark Zuckerberg was not very excited about going public and was very vocal about that in the startup community at the time. And that actually, I think, caused a lot of other companies to go relatively slow in that 2009–12 time frame. What ended up happening, as a lot of people slowed down or delayed their paths to IPO, is that you actually had the time for these companies to become quite attractive businesses.

A lot of those companies use that four or five years when things were pretty quiet to build up their businesses and actually cross into cash flow positive and eventually profitability. There are real businesses being built that are $200 [million], $300 [million], $400 million, and many of them are starting to cross to cash flow positive. So I do think ’25, ’26, ’27 will have very good feedstock for those markets at that time.

What are the possibilities to exit via mergers and acquisitions?

Wong: The big tech players appear to be under quite a bit of scrutiny. Those have traditionally been the high-priced acquirers of many of our startups. But there is another generation of folks that are emerging, I think the CrowdStrikes of the world, they’re about $80 billion market cap, or Atlassian at $50 billion, the Oktas, the Twilios, started to look at some of the smaller startup companies. So I think you’re gonna see a new generation of acquirers from the five- to seven-year-ago IPO class—they themselves will perhaps do smaller acquisitions.

Will private equity ever go unicorn shopping?

Wong: I wouldn’t say it’s a dramatic change now from a year ago, two years ago. Those teams are very professional and are always looking at smaller businesses for tuck-ins, and are looking at more of the platform businesses that are $200 [million to] $300 million–plus in size. And so you know, there is a constant dialogue of their interest, where there’s late-stage private or public.

Are we in the trough of disillusionment for AI?

Doyle: There’s just a huge enthusiasm and a fear of missing out with AI. The challenge with wanting to invest in AI, whether it’s in the private or in the public markets, is that so many of these businesses are not at scale, not at maturity yet. And in many cases, the public market investors are going to be cautious about—even with the hype around AI—investing in something where the vision takes more than a couple years to play out. Astera is an example of an infrastructure play on AI, where it’s a way for investors to participate in the secular theme, but with a physical product.

You're going to see the companies who have the physical infrastructure for AI be the first to demonstrate the scale and the success that investors in the public markets are going to want to see. The software layer is what’s going to come next, and there’s certainly an excitement for those businesses. But the proof points are still to come.

What do investors want to see from companies going public in terms of structure?

Doyle: On the traditional IPO deal structure, the pendulum has swung back from issuers to investors. They want a traditional lockup structure, where maybe you can have early release for a certain portion of nonofficer employees, but a much more traditional lockup structure. Investors want to see enough reasonable float where securities can trade well on the secondary market. Most companies have opted for things that are more investor friendly. It just takes deal structure off the table.

Wong: Maybe a decade ago, we used to talk about getting to $100 [million to] $150 million of top line as at least a minimum bar for a company before trying to take it public. I think that bar has been raised quite a bit where it’s not a lot of fun to go out there in the open ocean as a $1 billion, $1.5 billion market cap company. It’s really hard to get the attention of the major fund managers that matter, even the small-cap fund managers.

And so I think, you know, if we want to rewind and have the benefit of history, I would say you want to be quite a bit larger before you try to test the public markets, at least $250 million to $300 million of top line, ideally being cash flow positive.

Doyle: There are already so many things in the public markets that investors can choose from and buy. To come out with an IPO story, you want to give something to investors that they don’t already have access to buy. The biggest thing that’s missing from the public markets right now is growth. Over 50% of the tech companies out there are growing below 10%; only 5% of tech companies are even growing more than 40%. If you’re a company preparing to go public and can show sustainable growth, the market is in an environment right now where investors are willing to lean in for growth, they want to see profitability, and they want to see some minimum standard of efficiency.