San Francisco is likely to see something this week that neither it nor the Bay Area has seen in six months — an initial public offering by a local tech company.
Even if all goes well with Reddit’s offering, IPOs are unlikely to become as common in the near future as they were three years ago, market experts say. But many expect it could lead to a pick-up in offerings later this year, which could have big implications for the local economy and The City’s finances.
“I don’t believe this is a harbinger of a wide-open IPO market,” said Robert Siegel, a lecturer in management at Stanford Graduate School of Business. But, he added, “It could certainly help ... success begets success.”
As recently as three years ago, IPOs happened frequently in San Francisco and the wider region. On average, in 2019 and 2020, a city-based startup went public nearly every month. Across the Bay Area, about three went public every month, according to data from Renaissance Capital, a financial firm that closely tracks the IPO market.
That pace quickened in 2021, with about three San Francisco startups going public every two months and almost five per month across the region.
But the IPO market slammed on the brakes the following year and hasn’t rebounded since. When Reddit hits Wall Street this week, it will be only the second company of any kind based in The City to go public since the end of 2021 — following Instacart in September — and only the fourth tech company from the entire Bay Area, according to Renaissance Capital.
Excluding companies that went public at less than $5 a share, just 38 companies across the nation completed IPOs in 2022 and 54 last year, down from 311 in 2021, according to data compiled by University of Florida finance professor Jay Ritter. Just six of those in 2022 and nine in 2023 were tech companies, compared to 126 in 2021.
The 2022 tech IPO tally matched 2008 for the lowest ever since 1980, according to Ritter’s data.
The IPO slump, in part, can be blamed on the huge stock-market boom that immediately preceded it, market experts said. The stock market soared in 2020 and 2021 as the Federal Reserve slashed interest rates and pumped money into the economy to fight the recession sparked by the COVID-19-related lockdowns.
That sent company valuations relative to revenue or earnings through the roof and lured many startups — ones that generally wouldn’t have hit Wall Street in a more normal market — to go public. It also attracted investors eager to get an early stake in hot new public companies, no matter how unprofitable or immature they might be.
When the market started to fall in late 2021 amid rising interest rates, soaring inflation, geopolitical instability with the impending Russian invasion of Ukraine and fears of a recession, many of those newly public companies saw their stock prices get crushed.
Some went out of business completely, unable to raise new funds to make up for their ongoing losses. Others saw their shares delisted from the major markets because their prices or market capitalizations had fallen below market requirements.
Having swallowed major losses on newly public stocks, many investors lost their appetite for investing in IPOs, particularly by companies that were losing money and didn’t have the prospect of turning profits anytime soon.
The market for newly public companies “got really frothy” in 2020-2021, said Kristin Roth DeClark, global head of technology investment banking at financial giant Barclays.
“Investors don’t forget that,” DeClark said. “They know how much pain they were inflicted trying to get out of those positions.”
The run-up in public market valuations during that period led to a corresponding jump in the valuations of private startups, since their worth is often pegged to that of similar public companies. But while public-company values rise and fall on a daily basis with their stock prices, startup valuations are much more static, typically only getting adjusted when the company raises funds or authorizes a sale of stock by insiders.
Few startups that raised funds in the go-go days of 2020 and 2021 have wanted to go public at a valuation that would be lower than what it was then. A big part of the reason companies go public is to allow employees to cash in on stock options and their venture investors to get a return on their investments. But if a company goes public at a value less than it was worth when it handed out those options or sold shares to venture firms, neither will get to cash out in the immediate wake of the IPO.
On the flip side, public investors burned by what happened three years ago have been wary of overpaying for newly public companies, said Avery Marquez, an assistant portfolio manager at Renaissance, which provides exchange traded funds comprised of recently public companies.
Reddit executives, employees and investors know that tug-of-war well. The popular provider of online discussion forums raised $410 million at a $10 billion valuation in 2021. But in its IPO, it’s seeking an initial market capitalization of no more than $6.4 billion.
“Valuation has been and probably for the near term will continue to be a sticking point” for companies seeking to go public, Marquez said.
Things have become more favorable for IPOs in recent months. The major stock indices have all rebounded from their 2022 lows. Inflation is down. Interest rates have moderated. Unemployment is still low. There are few fears of an imminent recession. And many startups have taken so-called down rounds in the private markets, agreeing to accept reductions in their valuations in exchange for new infusions of cash.
And, importantly, public investors appear to be regaining their appetite for IPOs. Renaissance’s IPO index, which helps measure the stock performance of recently public companies, rebounded last year, Marquez noted.
Meanwhile, there’s a big hole in the market for fast-growing tech companies. Of the 6,000 or so publicly traded companies, just 26 in the tech industry are valued at $2 billion or more and are posting annual revenue growth of at least 30%, according to DeClark.
“There is a massive scarcity of growth [companies] in the public markets currently,” she said.
Plenty of companies appear poised to go public whenever Wall Street opens the doors more widely. It’s hard to quantify just how many, but in San Francisco alone, there are 32 late-stage startups that are valued at $2 billion or more that haven’t raised a venture round in more than a year, according to PitchBook, a venture-industry research firm. That tally doesn’t include South San Francisco-based Stripe or OpenAI or Databricks, both of which raised money more recently.
A turnaround could benefit the local economy and government finances. The venture and startup ecosystem is highly dependent on successful IPOs. The money that venture investors make when their portfolio companies go public is frequently invested in the next generation of startups. Executives of startups that successfully go public often go on to become venture investors themselves. And the employees of companies that have successful IPOs often invest their proceeds in new businesses or go on to found their own.
San Francisco’s business taxes are determined in part by companies’ payroll expenses, including exercised stock options. If a greater share of their payrolls are in The City, thanks to successful IPOs that spur options exercises, they’ll pay more taxes.
More importantly, the founding of new startups in The City leads to new business activity and hiring, which means more revenue for San Francisco’s coffers, said Ted Egan, The City’s chief economist.
“The biggest thing [a successful IPO] does is it makes VC say, ‘wow,’” and start investing in the new startups, Egan said.
But don’t expect a rush for the markets just yet, even if Reddit has a particularly successful IPO, experts say. Valuations of many startups haven’t come down. Many investors are likely still gun-shy after what happened in 2022. Inflation is still elevated compared to the past few decades. Interest rates remain relatively high, making it more difficult to convince investors to put their money in a risky new offering when they can park their money in a bank and get a decent return.
“The signals are still mixed,” said Stanford’s Siegel.
And few companies are going to want to go public until other businesses go first and prove that there actually is investor interest in new offerings, Siegel and other experts say.
“Nobody wants to be the guinea pig,” Marquez said.
Reddit may help open things up, but only a little bit, experts said. That’s because the company is kind of an outlier — there aren’t many other businesses like it that operate a money-losing but widely used social-networking service and are still waiting to go public even though they’re nearly 20 years old.
Indeed, if not for the recent boom in artificial intelligence and the demand it’s created for unique content like that found in Reddit’s forums for training its language models, the company might not be going public at all, said Robert Hendershott, an assistant professor of finance at Santa Clara University.
“In the absence of the AI boom, it’s hard to say that Reddit would have been the company that would have burst out of the starting gates here in 2024,” he said. He continued: “We’ve seen a lot of companies like them that have fallen by the wayside.”
DeClark said she sees the market as still being in recovery mode. She expects about 20 tech IPOs nationwide this year. That would be more than double last year’s tally but still about half that seen in a more normal year.
After the dot-com bust in 2000 and the Great Financial Crisis in 2008, the IPO market took about three years to fully recover, Ritter said. The recovery from the 2022 bust seems to be following the same trajectory, meaning it should return to normal later this year.
Reddit’s IPO might help that recovery, but only a bit.
“I don’t think Reddit is going to be a real important bellwether,” Ritter said. “But certainly,” he continued, “a well received IPO will be a helpful sign that will encourage other tech companies to go public.”
Mohammed Hamdan, owner of Cracked & Battered restaurant in Potrero Hill, said he hosts the suhoor during Ramadan “for the community ... this reflects who we are and our culture.”
At the corner of 18th and Connecticut streets in Potrero Hill is the original location of Cracked & Battered, a Palestinian family-owned restaurant that has been delighting San Francisco with its signature fried chicken and waffles and lemon-ricotta pancakes since 2018.
But during Ramadan, it transforms into a community hub, providing a sense of home and belonging for The City’s Muslims.
“This reflects who we are and our culture,” said Mohammed Hamdan, the restaurant’s owner. “People pray, stay up late until suhoor, and decorate with lights. It’s the best time of the year ... The goal is to bring a piece of our culture here.”
Ramadan, the ninth month of the Islamic lunar calendar, is a time of profound spiritual significance for Muslims, marked by 30 days of fasting from dawn until sunset. The month spans March 10 to April 9 on the Gregorian calendar this year. In the San Francisco Bay Area, roughly 250,000 Muslims observe Ramadan.
To Muslims everywhere, Ramadan is synonymous with spending time with family and loved ones — but for young professionals in San Francisco, the holy month brings a mix of solemnity and desire to find communal warmth.
“I try not to spend all of Ramadan in the Bay Area,” said Noha Noweir, a consultant who said she has experienced the loneliness of observing the holy month away from home. Over the past five years, she said, she’s spent only two Ramadans in San Francisco and three with loved ones in Atlanta and Egypt.
“For me, Ramadan is about a sense of family,” she said.
On any given weekend, the line at Cracked & Battered stretches long, with waits extending up to an hour. While the restaurant typically closes at 2 p.m., a visit during the late hours of Ramadan reveals a different scene: about 200 people gathering for suhoor, the predawn meal consumed before fasting begins.
The idea of organizing suhoor for the Muslim community began two years ago. Hamdan says he sought to create a space to unite his neighbors.
“We do it for the community,” he said. “It’s not about the money.”
Typically, Cracked & Battered serves around 200 people simultaneously for suhoor, a considerable undertaking.
“Indeed, it’s challenging,” said Ayah Hamdan, Mohammed’s daughter. “I work a full-time job, as do my brother and fiance. We’re working from 8 [a.m.] to 5 [p.m.], fasting all day. My dad covers the brunch shift, then we all return at night, working together to ensure that 200 people are happy and getting the food they want.”
The local Muslim community’s response has been overwhelmingly positive, with many expressing gratitude for the initiative and effort. Mohammed said community members frequently thank him for hosting the suhoor and are always asking for more. Ayah said her friends have told her it’s where they’ve made new friends and sparked romantic relationships.
“It’s become like a halal dating spot,” she said.
Having a place to gather with fellow Muslims is a plus, said Inès Mezerreg, an Algerian engineer who said she’s spent six Ramadans in San Francisco. She attended Cracked & Battered’s suhoor last year, which allowed her to meet other young people.
“We don’t always have our families with us,” she said. “It can be lonely, so it’s good to have those opportunities to meet people from our community.”
Patrons sit for a meal at Cracked & Battered in Potrero Hill, a San Francisco brunch staple that doubles as a community hub for The City’s Muslims during Ramadan. The restaurant offers a space to share the predawn meal consumed before fasting begins.
This year, Mohammed said, he plans to host the suhoor in collaboration with the Yaseen Foundation, the Muslim community association of the San Francisco Peninsula, at its Belmont center — and, he said, he will cover all the expenses himself.
“It’s never been about making money,” he said. “I don’t want to do it the business way. I don’t want to be making money out of religion. I don’t like that.”
During Ramadan, the Yaseen Foundation hosts Qiyam al-Layl, a special form of Islamic prayer performed at night. Though not obligatory, this prayer is highly recommended, especially during the last 10 days of Ramadan, for its spiritual benefits. Following the prayer, attendees often stay, reciting the Quran until it’s time for suhoor at around 1 a.m., which is when Mohammed will serve the food he and his family prepared at Cracked & Battered.
Despite the effort and exhaustion involved in planning a suhoor on this scale, Mohammed has shown he’s not stopping anytime soon.
“I’ve told my dad let’s not do it anymore, but he always pushes back,” Ayah said. “He’ll always tell me it’s not about the money. He just wants to be there for Muslims.”
Mohammed said creating a space for his culture and community is crucial.
“America is a melting pot of culture. How come our culture isn’t here?” he said. “We can’t live in America and not exist. This is good for our children in the future and who we are, and America is welcoming of that.”
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Kevin Robinson, a San Francisco Unified School District guest teacher pictured at Washington Square Park on Thursday, March 14, 2024, served on a district reopening panel four years ago that he said made little progress.
When San Francisco said March 16, 2020, that it would lock down a day later due to the spread of COVID-19, then-teacher Cassondra Curiel was given less than 48 hours to clear out of her Visitacion Valley Middle School classroom.
“The initial weeks of the shutdown in San Francisco, we had what the school district was calling an extended spring break,” said Curiel, the San Francisco teachers union’s current president. Officials thought it would last maybe two weeks.
Four years later, the coronavirus pandemic continues to reshape the world. Many of Curiel’s middle-school students in 2020 are now on the verge of graduating from high school, making them the first incoming college class whose high-school experience began with remote learning.
But it remains unclear just how much of an effect the pandemic lockdown had on children and their ability to navigate the world — and finding clarity is especially pressing for San Francisco’s students, as California lagged behind most states in returning to fully in-person learning.
San Francisco Unified School District spokesperson Laura Dudnick told The Examiner in an emailed statement that the district has focused on rebuilding the community and “meeting students where they are at” since returning to fully in-person learning in 2021.
“While providing distance learning, our district worked hard to make sure students and families had sufficient technology access and while we continue to use technology platforms for learning, we have infused greater relationship and community building into our in-person learning practices,” she said.
“We have continued to work with the City and community partners to meet the needs of our students and staff and respond to the evolving public health guidance as best we can,” she said.
Looking back on The City shutdown four years later, parents, families and teachers wonder what a generation of students has lost.
A sign for playing safe under COVID-19 conditions on a playground at Sunset Elementary School on Wednesday, Feb. 17, 2021. San Francisco public schools wouldn’t fully reopen for a few more months.
Almost 56,000 K-12 students were enrolled in SFUSD as of last year, according to state education officials. More than 16,000 were enrolled in private schools as of 2022, according to U.S. Census data.
Yvette Byes Edwards said her two children were in first and third grade when the pandemic sent SFUSD students home. While the pandemic doesn’t seem to have affected her younger child as much, she said, she has seen how her eldest is still struggling to adapt four years on.
“Those last few years of elementary school are critical in making sure that children are prepared for middle school,” she said. “I tell my seventh-grader even now — I feel like he leaves conversations like he just left a Zoom meeting.”
Students across the country have suffered significant learning losses due to the pandemic. The average student had fallen behind by a one-half of a year in math and one-third of a year in reading by spring 2022, according to joint research from universities across the country including Stanford and Harvard. SFUSD’s reading and math scores fell relative to the U.S. average between 2019 and 2023, the research showed.
In California, around 6 million children were forced to transition to remote learning during the pandemic. Of them, an estimated 1.8 million — mostly students of color — lacked digital access at home, according to a UCLA report published this year.
Curiel, a teacher at Visitacion Valley Middle School at the time, said she and her colleagues were not prepared for these challenges.
“We are trained to do this job for years,” she said. “Never have any of us been trained to do this job from within our student’s home or within ours.”
Edwards said she was fortunate enough to be able to work from home during the pandemic and that she feels neither of her kids is behind academically, but extended remote learning diminished something essential, especially in her eldest.
Despite him having an “amazing” third-grade teacher at the time, Edwards said she was left “just watching that real-time love of learning sort of disappear because of the isolation.”
A socially distanced setup in a kindergarten classroom at Bryant Elementary School ahead of the school’s reopening on Friday, April 9, 2021.
Part of the issue, she said, is that remote learning went on for far longer than it should have, leading her and other parents to organize the San Francisco Parent Coalition during the summer of 2020 to raise awareness about the difficulties some families were dealing with and advocate for a return to in-person learning.
“We were working with so many families during that time, who were in Wi-Fi dead zones, and they would have to drive them to places just to access Wi-Fi,” said Meredith Dodson, another San Francisco Parent Coalition founder, who also has two kids in SFUSD. “There were these extreme inequities in the system.”
Dodson and others still approve of San Francisco’s decision to close earlier than many other parts of the country, but they said they felt that schools took too long to return. They argued it widened gaps for lower-income and disadvantaged students.
“Families were getting desperate. There were so many families working on the front lines, they were working in restaurants, buses, hospitals,” she said. “They were like, ‘I can’t support my kids learning at home.’”
This led to turmoil within the district, and, eventually, a recall election of three board members in 2022. San Francisco Parent Action was a driving force behind the recall, but organizers weren’t the only ones who felt that the district should have opened up sooner.
Dr. Monica Gandhi, an infectious disease expert at UCSF and the author of “Endemic: A Post-Pandemic Playbook,” argued school closures and reopenings became politically motivated as the pandemic wore on.
“The United States followed party lines in terms of their school openings and closures,” she said. “In general, the blue states, blue cities — and San Francisco being the most blue city in the most blue state — kept their schools closed longer than states that were Republican.”
Gandhi advocated for the reopening of schools early on, and she said that the effects are now apparent across the board.
“There’s widespread agreement even among the left that school closures led to mental illness, mental-health concerns and also significant learning loss,” she said. “That learning loss really affected Black and brown communities more than white because learning loss also went along poverty lines.”
Other countries around the world reopened their schools as early as May 2020, she said, and were able to continue in-person learning safely from that point on.
Kevin Robinson, a substitute teacher in SFUSD who served on a district reopening panel in 2020, said there are a number of options for the district to address students’ learning gaps. He said expanded summer school could be an option, as could holding students back.
“Some of these kids might be ready socially and emotionally, but are they ready academically to go on to the next grade?” Robinson asked, acknowledging that repeating grades is a “controversial” option.
Dolores Huerta Elementary School teacher Tom Anderson — seen with his wife, Lisa Chen, and their two children, Kai 7, and Sasha, 5 — said SFUSD must “meet students where they’re at” in the wake of pandemic-era learning loss.
For other current teachers, investing in personnel remains paramount. The teachers union avoided a strike last fall by agreeing to a contract last fall that included substantial raises, which the union said would help the district retain teachers and avoid burnout.
“We meet students where they’re at,” said Tom Anderson, a special-education teacher at Dolores Huerta Elementary School who also has two kids enrolled in the district. That includes hiring more special-education teachers and other educators who can give extra attention to students who need it.
“At this point, we have to move forward, but also we’re not given — in special education and in the districts — the resources we need to help those same students from the district,” he said.
Curiel no longer teaches at Visitacion Valley Middle School. She said she keeps in touch with some of her former students, and she said their college considerations excited her.
“The biggest question right now for them is that they are mentally grappling with whether the cost of college is worth it,” she said.
Curiel said she was grateful for the chance to teach them, even during such a challenging time.
“It (the pandemic) was not a good thing, I wouldn’t want to do it again, I can definitively tell you that,” she said. “At the same time, there were a lot of amazing bright spots, and really impactful memories that they have from that experience that happened as a result of being able to be on Zoom with us.”
