The Decline of the IPO Market and the Shift in Company Quality

The IPO market is experiencing a decline in deal activity, with recent IPOs trading below their issuance price. Additionally, the quality of companies going public has decreased, with only 10% of VC-backed IPOs being profitable in 2021 compared to 78% in 1980. This shift can be attributed to a focus on scaling up and neglecting business models. The typical IPO now has five times larger revenues than those in the 1980s, yet the companies are less formed in terms of their business models. This trend started in the 90s with the dot-com boom, where companies started going public before establishing their business models. VCs are incentivized to prioritize scaling up rather than building solid business models, which can be detrimental to businesses and the overall economy.