Jason Geeves-Booth

Shareholder Activism Editor

IPO trends: 5 key lessons to be learned from the 2021 IPO boom

While 2021 will be forever synonymous with the COVID-19 pandemic, it will also be remembered as a record-shattering year for companies going public. A staggering 1,026 organizations entered the stock market, raising over $100 billion in the U.S. alone. It was a high-water mark in IPO history, and its ripple effects are still felt today.

But as we’ve had a few years to digest the data, what can we learn from that IPO cohort? More importantly, what lessons should today’s companies (especially those gearing up to go public) take from the dizzying highs — and inevitable corrections — that followed?

The perfect IPO storm

So, why was 2021 such an IPO powerhouse? In part, it was a “reopening” effect as the world emerged from the COVID-induced standstill of 2020. Interest rates were low, investors were hungry for opportunities, and there was a massive surge in tech and healthcare companies, many of which benefited directly from the pandemic’s unique pressures.

Another major player in 2021’s IPO success was special purpose acquisition companies (SPACs). These blank-check companies, designed to take businesses public without the traditional IPO rigmarole, accounted for more than half of the listings that year. That’s over 630 SPAC IPOs in one year — a tidal wave that’s since receded dramatically, as the SPAC craze cooled.

The aftermath: success or struggle?

While the IPOs of 2021 painted a rosy picture at first, time has shown a more complex reality. By 2023, about 777 of the original 1,026 companies remained public. That might sound high, but it reflects the attrition of companies going private, failing to thrive, or merging.

One particularly revealing metric is earnings per share (EPS). On average, companies going public in 2021 started out in the red, with losses averaging $1.96 per share. Fast forward to 2023, and while the average loss had narrowed to $0.33 per share, most were still unprofitable. Clearly, many of these IPO hopefuls were banking on long-term growth rather than immediate returns.

This brings us to an essential insight for companies considering going public today: Going public isn’t a golden ticket. It’s a launching pad, and the runway to success might be longer than you think.

Companies with weaker financials or less clear paths to profitability can face significant market pressures, as the IPO buzz fades and investors demand results.

Governance matters — but not how you think

Corporate governance has been a hot topic in recent years, and the 2021 IPO cohort revealed some surprising correlations between governance practices and performance.

For example, companies with smaller, more independent boards tended to perform better. Many of the 2021 IPOs featured leaner governance structures, with CEOs holding significant stakes and board members playing a larger role in company direction. A positive takeaway for today's IPO hopefuls is that board independence and tighter control can provide strategic benefits — if balanced well.

Yet, there were red flags too. Companies with classified boards — where directors are staggered and only a portion can be replaced in any given year — tended to see lower stock market performance. While this structure is often used to protect young companies from hostile takeovers, it appears that investors aren’t fans, often viewing it as a sign of weak governance.

On the flip side, longer board tenure correlated positively with total shareholder return, while long CEO tenure showed a slight negative correlation. It seems that while experienced board members add value, long-standing CEOs might benefit from a fresh perspective in a fast-changing market. For companies eyeing an IPO today, striking the right balance between stability and adaptability is crucial.

5 key takeaways for IPO-ready businesses

So, what should companies planning to go public in the near future take away from this?

1. The SPAC honeymoon is over
   If you’re thinking about taking your company public through a SPAC, tread carefully. The SPAC surge of 2021 has largely fizzled out, and with fewer regulatory requirements, SPAC IPOs are often viewed with skepticism. Ensure your fundamentals are strong, because today’s investors are scrutinizing SPAC deals more than ever.
   
2. Governance isn’t just window dressing
   Strong governance structures — like board independence and strategic CEO oversight — matter. Companies that built robust governance into their IPO foundations fared better than those that didn’t. Investors are increasingly savvy to corporate governance trends, so prioritize transparency and accountability.
   
3. Profitability still rules the day
   Many 2021 IPOs were riding high on growth potential, but profitability remains king. With rising interest rates and a more cautious investor base, companies that can demonstrate a clear path to profitability will stand out in today’s IPO market.
   
4. The public market demands patience
   Going public is just the start of the journey. As the 2021 cohort showed, it can take years for companies to shift from losses to profits. Investors will look for IPOs where leadership has a clear long-term vision and avoid getting caught up in the hype of initial stock price surges.
   
5. Classified boards can hurt your stock
   While some companies may think classified boards offer protection, they can be a turnoff for investors, who may view them as a governance red flag. If you’re considering a classified board structure, have a plan in place to transition out of it as the company matures.

Looking ahead: The future of IPOs and the role of technology

While the IPO market has cooled considerably since the frenzy of 2021, the underlying principles of success remain the same. Companies with strong governance, clear paths to profitability, and the ability to adapt will stand the test of time.

As companies prepare for their IPOs today, these lessons remain critical. Board management software, meanwhile, has emerged as an increasingly powerful solution to address these challenges.

For instance, many companies in 2021 — as they still do today — found themselves scrambling to keep pace with evolving compliance requirements, manage vast amounts of sensitive information, and coordinate decision-making across dispersed teams. The ability to streamline governance and maintain rigorous oversight was crucial — and often made the difference in how smoothly a company transitioned into the public sphere.

By implementing market-leading board management software like the AI-powered Diligent Boards, companies can get ahead of these complexities with ease.

Such technology enables seamless collaboration among board members, secure document sharing, and improved communication — all essential for navigating the intricate IPO process. Additionally, it ensures that governance practices are not only compliant but also transparent, building trust with investors and regulators alike.

The 2021 IPO boom showed us that success requires more than strong financials — it demands governance that’s as agile and sophisticated as the market itself. Companies preparing for an IPO today can take this to heart and invest in the right tools to ensure a smooth, well-governed path to going public.

Schedule a demo today to explore how board management software can equip your company with the tools needed to meet these demands and thrive in the public market.