M FoundationThematics | EuropeVenture Vision: IPOs #2 – What Next?Morgan Stanley & Co. International plc+Edward StanleyEquity Strategist Edward.Stanley@morganstanley.com +44 20 7425-0840 Matias OvrumEquity Strategist Matias.Ovrum@morganstanley.com +44 20 7425-9902 Our Venture Vision weeklies look at (1) early-stage cross-theme funding patterns; (2) relative valuations between themes; (3) public versus private valuations; (4) the resulting anomalies within certain themes. Please let us know if you would like our excel database of >45,000 VC deals categorised by theme, country, value and date. We also send this file as a weekly distribution if you would like to receive it regularly. See here for our global market synopsis. See here for our longer analysis on the state of the VC market, particularly as it relates to non-US Venture and innovation acceleration. We present 3 theoretical scenarios for IPO activity: (1) if our strategists' view on the S&P500 materialises; (2) if January S&P500 returns foretell what happens next; and (3) if this cycle restarts like the last five did. From most to least bullish, the scenarios rank 3 then 2 then 1. US election years are positive in any scenario.• See here for our first in this IPO series: The State of MarketsExhibit 1:State of the IPO markets – how our findings differ from the consensus viewOur Take For Investors:Our Take For Corporates: '22 and '23 were the worst years for IPO activity in decades. However, due to the knockout performance in '20 and '21, the decade is still tracking on par compared to the prior four. When IPO cycles turn, they typically do so rapidly. History suggests material upside from here in 2024/25.Our global economists believe the funding environment is on the cusp of improving after two years of rising rates. Market valuations are also supportive compared to previous IPO market troughs. Successful IPO cycles restarts tend to be led by profitable companies first...at 2-4x Sales.Macro headwinds and tepid CEO confidence could push an IPO market re-start into 2H24/1H25.Consensus view:Source: Morgan Stanley Research Three scenarios… all pointing to a return to more "normal" levels: Below, we summarise three hypothetical scenarios and the possible $bn IPO proceeds in 2024 that could result from them: 1. Our equity strategists' view on the S&P500 plays out, implying a possible bull/bear IPO proceeds range of $12-40bn – even at the low end, this would be a 20% uplift YoY in 2024.2. January S&P500 returns YoY presage what happens next, pointing to a $42bn year in 2024 – a strong start to the year for the S&P500 has typically led to a strong year for global capital markets. That said, narrow breadth to date in 2024 may lend itself more prudently to an equal-weight S&P500 benchmark.3. This cycle restarts like the last five did, suggesting a $43bn proceeds year. ...
