ARM filed their pricing range to go public this week. It’s going to be one of the biggest IPOs in the last year, and investors are starting to think about what that means for the broader IPO market: Is the window open for tech companies to go public again? 

The question isn’t whether the window is open or not. The window is open. 

The question is how wide the window is open.

That’s always the question. If the market is in an upward trend for several months in a row, which it has been all year this year, it’s open. But it may only be open a little bit, where only pretty high-quality companies can get out. The question is can the less high-quality companies, the more speculative companies, get out? That’s what we’re going to learn in the next couple of weeks depending on how these pricing events go. 

ARM is getting a pretty rich valuation, which speaks to investor optimism around tech in general. I think that the real barometer for the IPO window for tech companies is going to be Instacart and Klayvio, which happen later this week. 

ARM is a pretty mature company. It was previously a public company and taken private after SoftBank bought it in 2016 for $31 billion dollars. Instacart and Klayvio, however, are venture-backed companies. They went through the venture world, and I think the receptivity to them is going to tell us more about whether the window is really open for other later stage, venture-backed companies. 

What the valuations are for Klayvio and Instacart and how they’ll trade on the first day will be the two big things to look for. Is there enough demand on the first day given whatever the IPO price is? Is there investor demand to get into these companies? If those numbers are in line with historical averages that’d be a positive; if it was slower, it’d be slightly negative.

If they have successful IPOs you’re going to see a lot of other venture-backed private companies think about testing the markets. We’ve been in this void of liquidity essentially for 18 months, where no late-stage private companies have been able to go out because the markets have been really challenged.

There are a lot of companies on the sidelines, some that, in retrospect, should have gone public in 2021 when the markets were frothy and crazy. I’d expect a lot of them to think about correcting those mistakes at this point. Stripe is the biggest and most obvious one. Databricks might go public. Maybe Elon takes SpaceX public—that’d be more of a wildcard.

There’s this double-edged sword: When the IPO window is open you’re going to get the best price for your stock and be able to raise the most money with the least dilution. But the other side of that coin that people forget is that when you sell stock, you’re creating a set of future demands on your business from investors who are saying, “I’m buying this stock, and I expect the company to do X over some time period to justify my investment from a fundamental perspective.”

There’s a fundamental reality to selling your stock at prices that might be elevated. We saw a lot of the IPOs that came out in a really frothy time in 2021 correct a ton, and that’s ultimately really harmful to companies. Employees don’t want to work there when your stock is in the tank, and that’s the other side of the risk equation. Companies need money and access to capital, want liquidity for their employees and investors in order to be able to sell stocks, and have to do a great job of managing expectations for investors to build a business that justifies the stock price in the long run.

I think it’s unlikely that this week’s IPOs go so poorly that nothing happens in terms of the window staying closed. There’s going to be an opening—the question is just how wide.