Faster Than Normal | July

We are living through the most successful IPO class in over two decades. The 2021 cohort — those companies that went public in the SPAC and direct listing frenzy — has now delivered median returns of 127% from their IPO prices. Even more striking: these returns exclude dividends, meaning the actual investor experience has been even stronger.

This performance demolishes the conventional narrative about 2021 IPOs. The story most investors internalized was simple: pandemic-era companies went public at inflated valuations, retail investors got burned, and the whole exercise was a cautionary tale about market timing. That story is wrong.

The numbers tell a different story. Of the 1,035 companies that went public in 2021, the median stock has more than doubled. This isn't a story of a few mega-winners skewing the average — it's broad-based outperformance across sectors and deal structures.

Consider the traditional IPO format first. Companies like Toast, which went public at $40 and now trades above $90. Or Codebase, up over 200% from its IPO price. These weren't speculative plays or meme stocks. They were profitable or near-profitable businesses with clear paths to scale.

The SPAC format, widely dismissed as a vehicle for promoting questionable companies, has produced equally impressive results. Desktop Metal, which merged with a SPAC at an effective price of $12, trades above $30. Lucid Motors, despite production challenges, still trades well above its SPAC merger price when adjusted for the structure.

Even the direct listings — a format that theoretically should provide more efficient price discovery — have delivered substantial gains. Roblox, which went public via direct listing at a reference price of $45, peaked above $140 and still trades well above its debut price despite a significant pullback.

The disconnect between perception and performance reveals several systematic errors in how investors and analysts evaluated the 2021 IPO class.

Timing bias dominated analysis. Most commentary focused on when these companies went public rather than what they were building. The assumption was that anything IPO'ing during a "bubble" period must be overvalued. This ignored the fundamental quality of many businesses in the cohort.

Sector rotation obscured individual performance. Growth stocks broadly underperformed from 2022 through early 2024 as interest rates rose and investors rotated toward value. Many 2021 IPOs fell 50-80% from their peaks, creating the impression of permanent destruction. But these were cyclical moves, not permanent impairments.

SPAC stigma created systematic undervaluation. The SPAC format became associated with fraud and promotional activity after several high-profile failures. This tarred legitimate businesses that simply chose an alternative path to public markets. Investors avoided the entire category, creating opportunities for those who looked at individual companies rather than deal structure.

The 2021 IPO class succeeded because it contained genuinely innovative companies going public at scale. Unlike the dot-com era, when companies went public with minimal revenue and speculative business models, the 2021 cohort included businesses with proven unit economics and clear competitive advantages.

Toast built a comprehensive restaurant technology platform during the pandemic, when digital transformation became existential for hospitality businesses. Their IPO timing wasn't lucky — it was strategic, capturing the moment when their total addressable market exploded.

Roblox created a user-generated content platform that redefined gaming for an entire generation. Their direct listing wasn't a gimmick — it was recognition that traditional IPO processes poorly served platform businesses with complex network effects.

Even the more speculative plays often had solid fundamentals. Lucid Motors, despite production struggles, developed industry-leading battery technology and luxury manufacturing capabilities. The market initially dismissed the execution risks, then overcorrected by ignoring the technological advantages.

The 2021 IPO environment also created structural advantages that persist today. Companies that went public during peak liquidity raised substantial capital at favorable terms. This war chest provided multiple years of runway to execute their strategies without additional dilution.

Capital efficiency became a competitive moat. While private competitors continued raising capital at increasingly difficult terms through 2022 and 2023, public companies from the 2021 class operated from positions of financial strength. They could invest through the downturn while competitors cut expenses.

Public market discipline accelerated maturation. The companies that survived the 2022-2023 correction emerged as more efficient operators. Public market scrutiny forced rapid improvements in unit economics and capital allocation. Private competitors faced the same market pressures but without the transparency and accountability mechanisms that public markets provide.

Multiple arbitrage opportunities emerged. Many 2021 IPOs now trade at substantial discounts to private market comparables, despite superior liquidity and operational transparency. This creates ongoing opportunities as the private-to-public valuation gap normalizes.

The 2021 IPO class succeeded because it captured companies at an inflection point in multiple technology adoption curves. Cloud computing, mobile commerce, digital payments, and remote work weren't pandemic fads — they were permanent shifts that accelerated during 2020-2021.

Companies that went public during this window positioned themselves at the center of these transitions. Their success reflects not market timing luck but strategic positioning during a period of genuine technological disruption.

The lesson isn't that all IPOs are good investments or that market timing doesn't matter. It's that fundamental business quality ultimately drives long-term returns, regardless of short-term market sentiment or the specific path to public markets.

The 2021 IPO class offers a case study in how narrative and reality can diverge in public markets. While investors focused on valuation concerns and format innovations, they missed the underlying strength of the businesses going public. Three years later, the results speak for themselves: sometimes the best investments are hiding in plain sight, dismissed by consensus wisdom that mistakes timing for substance.