As Masayoshi Son, the enigmatic Japanese billionaire, sets the stage for Arm’s impending New York listing, a cloud of anticipation hangs over the tech world. Son, once briefly the world’s richest man, seeks redemption after a string of ill-fated tech bets, including investments in WeWork and Uber. The fate of Arm’s IPO could determine if Son still possesses a golden touch.
Acquired by Son’s conglomerate, SoftBank, in 2016, Arm’s upcoming IPO carries monumental implications. In a sector scarred by post-pandemic valuation slumps and funding challenges, tech investors and entrepreneurs pin their hopes on Arm to rekindle their fortunes.
A Valuation Powerhouse
If the speculated valuation of $70bn holds true, Arm’s IPO would mark the largest tech listing since Didi’s debut in 2021. The tech giant could raise up to $10bn in capital, a feat not witnessed since Alibaba’s historic offering nine years ago. Beyond its financial significance, Arm’s success could signal a new dawn for the tech sector, reinvigorating investor appetite.
Tech’s Rollercoaster Ride
The year 2021 witnessed tech valuations soaring to unprecedented heights. Pandemic-induced stimulus measures and the digital shift fueled frenzies like the NFT boom and Spac mania. Companies with losses, such as Amazon-backed Rivian, achieved valuations exceeding $100bn on their debut. Even the London Stock Exchange hosted high-profile listings like Deliveroo, Wise, and Darktrace.
Yet, this euphoria was short-lived. The surge in interest rates in 2022 sent shockwaves through high-growth tech firms, puncturing valuation bubbles. IPOs ground to a halt, with just 22 tech offerings in the US in 2022, compared to 127 in the previous year. The UK experienced a similar decline, with only 5 floats in 2022 compared to 37 in the year prior.
The Litmus Test
Amidst this backdrop, Arm’s IPO emerges as a litmus test for the industry’s resilience. Having filed its prospectus, Arm’s bankers will now embark on a journey to drum up investor interest and set the share price in mid-September. The IPO’s performance on its first trading day could determine if other companies dare to venture into the public markets.
Navigating New Norms
Investor expectations have evolved. Once eager to back loss-making startups, investors now seek sustainability and profit. The “rule of 40,” demanding that profit margins and growth total at least 40%, has become a yardstick for potential investments. Arm’s success might usher in a new era of more discerning investing.
A Hopeful Outlook
As Arm prepares to make its debut on the US market, confidence could ripple across start-ups worldwide. Ventures that faced a slump in funding might find renewed support, with an influx of capital waiting to be deployed. UK venture capital investments, which have dwindled this year, could experience an uptick.
While Arm’s decision to list in the US disappointed the UK government, it could set the stage for a resurgence of tech IPOs on both sides of the Atlantic. As tech founders navigate a changed landscape, Arm’s performance may illuminate a path forward for the industry’s future stars.