The record for the IPO was 2021. now selling like crazy

Traditional initial public offerings raised more money in 2021 than ever before, as startup founders and early investors seek to capitalize on sky-high valuations. In the first eight months of the year, shares of the IPO rallied. According to Dealogic, in November, the category for 2021 IPOs were trading up 12% on average. By the end of December, they traded 9% below their IPO prices.

The IPO market, full of ups and downs and companies of all shapes and sizes, is hard to track overall. That’s why we planned every traditional IPO for 2021 and figured out how they performed throughout the year to tell you what happened to the market. Here’s what the data shows:

Investors, bankers and traders say there are two main reasons for the fall at the end of the year.

On the heels of rising inflation, central banks indicated they would raise interest rates next year, which could lead to a widespread sell-off in technology stocks. The allure of many IPOs is that companies can one day make huge profits. But they could have flopped too. Higher available interest rates alter the opportunity-cost calculation for investors who are betting on future growth companies’ profits. When rates are close to zero, it makes more sense to pay a premium for the potential for larger returns in the future. When rates rise, the offer becomes less attractive.

Another pressure on 2021 IPO performance is the unprecedented supply market flooding of IPOs and increased interest and participation by individual investors.

Nearly 400 traditional IPOs—as well as an additional 600 special-purpose acquisitions company launches—flooded fund managers and analysts this year, with many saying not a day goes by without a formal call or pitch.

“While having a record number of IPOs is a boon for bankers, it is an environment to be very careful as an investor,” said Denny Fish, portfolio manager at Janus Henderson Investors. The $7.2 billion Janus Henderson global technology and innovation fund Mr. Fish manages shares of Toast Inc. and GitLab Inc. in its 2021 IPO. Toast is down 8% since its IPO while GitLab is up more than 20%.

Investors, bankers and executives say the market reaction has prompted them to rethink what makes an IPO a success. It has also presented a potential speed bump for companies going public after a whopping year and a half.

The pipeline for a 2022 IPO is strong, with more than 900 private companies globally valued at $1 billion or more. Lawyers and bankers say many companies seeing stock-market debuts in early 2022 are re-evaluating the price they’re trying to bring in, but some are abandoning their plans to launch .

“None of the companies we’re working with have gone down the pencil,” said Josh Bonney, co-head of global capital markets practice at Simpson Thatcher & Bartlett LP.

Some large investors say they prefer the more muted IPO performance in the early days of the company’s launch. Portfolio managers of large funds receive fewer shares in an IPO than they want, and need to buy more stocks in the initial weeks and months following an IPO to build their position. If the stock doubles right out of the gate, it becomes harder to do so.

But the big pop and solid performance help pull companies and investors into IPOs. When this is replaced by a downdraft in IPO stocks, it can lead to further freezing.

“When deals haven’t been profitable for investors, naturally they’re going to be more skeptical of the next deal,” said Daniel Burton-Morgan, head of America’s Equity Capital Markets Syndicate at Bank of America Corp.