The market downturn led to the longest US tech IPO drought in more than 20 years.

The stock market slump since the start of the year has led to the longest drought in U.S. tech listings this century, with experts wary of the pace of recovery even after tentative signs of life in other sectors.

Wednesday marks 238 days without a tech IPO valued at more than $50 million, according to research from Morgan Stanley’s technology equity capital markets group.

The US stock market has been rocked this year by the Federal Reserve’s battle to keep inflation down with higher interest rates. Higher rates reduce the value of future earnings, hitting stock prices and raising fears that the economy could be pushed into recession.

High-growth technology stocks dominated last year’s record-breaking IPO market and enjoyed some of the biggest gains during the stock market’s rally, but they have also been hit disproportionately by sales this year.

The tech-dominated Nasdaq Composite is down about 28 percent this year, while the S&P 500 is down just over 19 percent, while the Renaissance IPO Index, which tracks U.S. listed companies over the past two years, is down more than 45 percent.

“There is a tremendous amount of uncertainty in the market right now, and uncertainty is the enemy of the IPO market,” said Matt Walsh, head of technology equity capital markets at SVB Securities.

“I think we should see some stabilization in the outlook and investors getting further off the risk curve and going back into buying public securities before they buy tech IPOs.”

Life insurer Corbridge last week completed its first $1bn US IPO since January, and the cautious early reception highlighted investor caution even for well-established and profitable businesses.

Even after the Corebridge deal, overall US IPO volume has fallen by 94 per cent year-on-year, with just $7bn raised so far in 2022, compared with $110bn in the same period last year, according to Dealogic data.

Corbridge was closely watched as a sign of investor appetite for further deals. But Nicole Brookshire, a partner at law firm Davis Polk, which specializes in tech listings, said other factors, such as weak earnings reports, “could have a much bigger impact on the prospects for new tech startups.”

“The policy has worsened in some companies and sectors [and] “Many companies are feeling the effects of macro headwinds and this is affecting valuations,” she said.

IT groups in the S&P 500 met revenue estimates for the second quarter, according to FactSet, but forecasts for the third quarter have been repeatedly revised lower, with revenue now expected to fall 4 percent year over year.

Many technology groups have responded to the downturn by focusing heavily on cutting costs and improving profitability, but Brookshire said companies need time to show the changes are working.

“Last year there was a little discussion about profitability [among IPO candidates]. There’s a lot going on right now, but shifting focus from a growth story to a profitable story will take time until the problem solvers can prove their progress.

A more positive factor in extending the drought, SVB’s Walsh added, is that “there isn’t the same sense of urgency” for tech companies to raise more private capital before the crash. He said he expects a “small group” of companies to still try to list this year, but most have already pushed their plans to 2023.

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