Will Tech IPOs Gain Momentum in 2025? What the Chime IPO Tells Us.

It’s been just over four years since the tech industry has experienced a high output of VC-backed IPOs. Between 2017 & 2021, there were 763 VC-backed IPOs, 315 of which went public in 2021 alone (1). Not only were IPOs going gangbusters, but there was incredible growth in the number of Special Purpose Acquisition Companies (SPACs) happening at the same time. As a sidebar, SPACs have been around for a while (since 1993)(2) but weren’t widely used as a primary financing mechanism compared to other methods. However, in the years leading up to 2021, SPACs gained in popularity as investors were flush with cash and there were a lot of aging private tech companies sitting on the sidelines eager to go public. Some might argue that the same problem exists today. Between 2017 & 2021, there were 1000 SPACs formed (613 in 2021 alone), nearly six times more than the previous 10 years combined.

Then, in 2022, when the world began to emerge from the cocoon of the pandemic and access to capital started to dry up, the IPO market swung dramatically. Between 2022 and the end of the first quarter of 2025, there were 250 IPOs. This a 67% decrease from the 2017 to 2021 period. The number of SPACs also decreased, falling from 613 in 2021 to 86 in 2022, an 86% decrease.

The dropoff in IPOs and SPACs was in response to several market factors – rising interest rates, market volatility, and macroeconomic uncertainty (among other things). One might think the negative effect on investor sentiment wouldn’t be so strong, assuming investors understand that the market ebbs and flows. But instead, the opposite has happened. The paradoxical nature of the current environment is that while investors are flush with cash they aren't nearly as aggressive as before in deploying capital. As such, the IPO market for VC-backed tech companies has stagnated for the last 4+ years.

But, could the IPO market be changing for the positive for VC-backed tech companies?

I'm cautiously optimistic that the Chime IPO marks the beginning of a turnaround. Let's take a look at the fundamentals of Chime to shed light on why. Note: This information was obtained from Chime’s S-1 filing (HERE).

•   First, Chime has been a private company for 13 years. Over that period, the company has built a base of 8.6 million active members, with 67% using Chime as their primary banking relationship. Each Chime customer has adopted 3.3 Chime products on average.

•   Second, the company serves a large and growing base of customers that are overlooked by traditional banks. “Americans earning up to $100,000 annually are estimated to account for less than 35% of consumer deposits yet over 75% of debit card transaction volume.” Chime focuses primarily on these customers.

•   Third, the company has an operational advantage over traditional banks. Chime’s digital-first approach significantly reduces their overhead expenses. The company has used AI technology to deliver 68% of their member support services “without the need for human intervention.”

•   Fourth, the company is trending toward profitability. In 2022, 2023, and 2024, the company’s revenue and net income were $1 billion and ($470 million), $1.27B and ($202 million), and $1.67 billion and ($25.3 million), respectively. In the first three months of 2025, Chime’s revenue and net income were $392 million and $15.9 million, respectively. It's not uncommon for a high-growth technology company to go public before achieving profitability. In Chime’s case, the company achieved 88% gross margin and 67% transaction margin in the first quarter of 2025, so their unit economics suggest they have the potential to reach profitability in the future.

Like most companies at Chime’s stage, the company has a long list of potential risks. Some of them include, but are not limited to, the ability to retain active members, regulatory changes, maintaining brand reputation, financial risk, competition from similar companies, data security threats from bad actors, retaining key employees, and more.

In conclusion, I think the Chime IPO is a great example of the type of progress investors want to see and the type of risk they are okay with taking when investing in a VC-backed tech IPO. I also think the 13-year timeframe Chime took to go public says a lot about the paradigm shift in how companies finance themselves to extend their lives as private companies.  According to Pitchbook, Chime raised $2.65B from private investors before going public and $864 million in its IPO (3). Even though this was a “down-round IPO,” most of Chime’s early VC-backers still made a healthy profit on their initial investments (See Details Here).

I cannot (and won’t try to) predict the future, but I’m cautiously optimistic and hopeful that the Chime IPO marks the beginning of a turnaround for tech IPOs. We’ll have to wait and see what happens from here.

Cheers – KM

Disclaimer: The information provided is for informational purposes only and does not constitute an offer, solicitation, or recommendation to buy or sell any security, investment product, or financial instrument. I am not endorsing or recommending the purchase or sale of any particular stock or investment. All investment decisions should be made based on your own analysis and in consultation with a qualified financial advisor.

Sources:

(1)    Pitchbook Venture Monitor Q1 2025

(2)    Canterbury Consulting

(3)    Reuters