By Liz Dunshee
With New Year’s Day approaching, now is an exciting time to imagine what lies ahead for the capital markets. Q1 is typically quiet, but if you’re considering an initial public offering in 2026, keep an eye out for these key signs of a healthy market, drawn from a lively and informative discussion at the 2025 Berkeley Fall Forum on Corporate Governance that was moderated by Cooley partner Jon Avina:
- Tech IPOs continue to rebound: I shared data points in my November 24th blog that point to a healthy rebound for the tech sector. We are cautiously optimistic this trend will continue into 2026, and that it will help revitalize the market for other sectors as well.
- Regulatory roadblocks begin to clear: Compliance costs, litigation risk and shareholder activism have caused some hesitation around going public. While it’s more a speed bump than a deal breaker, look for the road to be even smoother in the upcoming year. We expect rulemaking proposals from the Securities and Exchange Commission in 2026 that will aim to simplify disclosure and depoliticize the annual meeting process, among other things – and even before any rules change, the current SEC Commissioners and staff are adapting their practices to ease burdens for aspiring and current public companies.
- The political and macroeconomic environment stabilizes: This will be key to unlocking IPO momentum. A trend of favorable economic data will be a good sign for IPOs, but at the same time, we are experiencing an environment of uncertainty that makes it difficult for companies to forecast and invest. For example, we are facing the possibility of another government shutdown on January 30. The SEC did what it could to keep IPOs moving during the historic shutdown this fall – we tracked the play-by-play in running timeline on this blog – and we even got a few across the finish line. However, an unfunded government isn’t a sustainable environment for capital markets deals.
- Exit benefits outweigh valuation drag: Private markets have been offering higher multiples (20 – 40x) compared to public (5 – 10x), making the leap to go public less attractive. But at some point, employees and investors need liquidity, and there are a number of mature private companies that may be reaching that inflection point.
- Non-unicorns are able to go public and trade up: As we (hopefully) return to a more active IPO market, going public will be a viable exit for more mid- to small-sized companies, not just unicorns. When we see that happening, we will officially declare a rebound!
As far as what the market will look for in assessing whether a company is IPO ready, we predict that companies will be poised to succeed in the current environment when they have:
- A pressure-tested growth story: durable growth and free cash flow trending in the right direction and/or outsized growth that triggers investors’ scarcity instincts – 25 to 30% growth is rare and prized by investors.
- Revenue that scales: $250 million+ in revenue is a rough benchmark, with $500 million+ preferred.
- Clear return on investment in artificial intelligence: For companies where the value proposition ties into AI, investors are wary of “AI washing.” Companies need to credibly connect AI strategies to financial performance – articulating how AI drives revenues and/or reduces costs.
- Reliable processes that show public company readiness: Investors’ confidence will grow when companies are prepared to meet expectations for at least eight quarters post-IPO.
Beyond IPOs, the tea leaves are also showing positive signs for alternative methods of capital raising:
- Convertible debt remains hot, especially for private equity-backed companies. We discussed reasons for this trend in – and how companies can use it to their advantage – in this July 10th blog.
- Direct listings may increase, particularly for late-stage companies with large shareholder bases looking for an exit.
- Dual-track strategies persist, since some companies will benefit from keeping both options open. Engaging in IPO prep alongside a potential M&A exit is not for the faint of heart and requires strategic planning, which we’ll be discussing in this March 26, 2026 webinar on Dual Track Considerations – register here.
I haven’t heard anyone predict that the IPO market will flip overnight, but there’s a consistent thread of optimism based on the market’s signs of life in 2025. We’ll be keeping our crystal ball handy – and we are encouraging clients to be ready to go when the moment is right. Find other takeaways from the Berkeley Fall Forum here and here.
