Next a record-breaking tech IPO year in 2021 that featured debuts from electric carmaker, Rivian; restaurant software company, Toast; cloud software providers GitLab and HashiCorp and stock trading app Robinhood 2022 has been a complete flop.

According to CNBC, the only notable tech offering in the US this year was the spin-off of Mobileye by Intel, a 23-year-old company that makes self-driving car technology and was publicly traded until its acquisition in 2017. Mobileye raised little. less than $1bn, and no other US tech IPO raised even $100m, according to FactSet.

In 2021, by contrast, there were at least 10 tech IPOs in the US that raised $1 billion or more, and that’s not taking into account direct listings from Roblox, Coinbase, and Squarespace, which were so well capitalized that they did not. you need to bring external cash.

The narrative changed completely when the calendar changed, with investors abandoning risk and the promise of future growth, in favor of profitable businesses with balance sheets deemed strong enough to weather an economic downturn and higher interest rates. Pre-IPO companies modified their plans after seeing their public market peers drop 50 percent, 60 percent and, in some cases, more than 90 percent from last year’s highs.

In total, IPO revenue plummeted 94% in 2022, from $155.8 billion to $8.6 billion, according to Ernst & Young’s IPO report published in mid-December. As of the report’s publication date, the fourth quarter was on track to be the weakest of the year.

With the Nasdaq Composite heading for its steepest annual decline since 2008 and its first consecutive years underperforming the S&P 500 from 2006-2007, technology investors are looking for signs of bottoming out.

But David Trainer, chief executive of stock research firm New Constructs, says investors must first check reality and re-price tech start-ups based on fundamentals, not wild promises.

As tech IPOs flew by in 2020 and 2021, Trainer was flying the warning flag, publishing detailed reports on software, e-commerce, and tech-adjacent companies that were raising their sky-high valuations from the private market to the public markets. Trainer’s calls seemed comically bearish when the market was bullish, but many of his picks seem prescient today, with Robinhood, Rivian and Sweetgreen each at least 85 percent off their highs last year.

“Until we see a persistent return to smart capital allocation as the primary driver of investment decisions, I think the IPO market will struggle,” Trainer said in an email. “Once investors focus on fundamentals again, I think markets can go back to doing what they are supposed to do: support smart capital allocation.”

Lynn Martin, president of the New York Stock Exchange, told CNBC’s “Squawk on the Street” last week that she is “optimistic about 2023” because “the order book has never been stronger” and that activity it will pick up once the volatility starts in the market. to dispel

For companies in the pipeline, the problem is not as simple as getting through a bear market and volatility. They must also recognize that the valuations they obtained from private investors do not reflect the change in public market sentiment.

Companies that have been funded in recent years have done so at the end of a long bull run, during which interest rates were at record lows and technology was driving major changes in the economy. Facebook’s mega initial public offering in 2012 and millionaires minted by companies like Uber, Airbnb, Twilio and Snowflake recycled money into the tech ecosystem.

Meanwhile, VC firms raised ever-increasing funding, competing with a new crop of hedge funds and private equity firms that were pumping so much money into technology that many companies were choosing to stay private longer than they otherwise would. otherwise.

In 2021, venture capital firms raised $131 billion, surpassing $100 billion for the first time and marking more than $80 billion for the second straight year, according to the National Venture Capital Association. The average post-money valuation for venture capital deals in all stages has risen to $360 million in 2021 from around $200 million a year earlier, the NVCA said.

Those valuations are in the rearview mirror, and any company that has risen during that period will have to face reality before going public.

Some late-stage high-value startups have already taken their lumps, though they may not be dramatic enough.

Stripe cut its internal valuation by 28 percent in July, from $95 billion to $74 billion, the Wall Street Journal reported, citing people familiar with the matter. Checkout.com cut its valuation this month to $11 billion from $40 billion, according to the Financial Times. Instacart has taken multiple hits, dropping its valuation from $39 billion to $24 billion in May, then to $15 billion in July and finally to $10 billion this week, according to The Information.

Klarna, a provider of buy-now-pay-later technology, suffered perhaps the steepest drop in value among big-name startups. The Stockholm-based company raised funding at a valuation of $6.7 billion this year, an 85 percent discount from its previous valuation of $46 billion.

“There was a hangover from all the binge drinking in 2021,” said Don Butler, managing director at Thomvest Ventures.

Butler does not expect the IPO market to improve appreciably in 2023. Ongoing rate hikes by the Federal Reserve are more likely to push the economy into recession, and there are no signs yet that investors are enthusiastic about taking on risks.

“What I’m seeing is that companies are looking to weaken consumer and consumer demand,” Butler said. “That will also make 23 difficult.”