IPO activity fell off in 2023 despite some high-profile market debuts. 2024 is expected to be a rebound year for the IPO market as brands strategize their public offerings.

Torch Capital Founder and Managing Partner Jon Keidan sits down with Yahoo Finance Live in-studio to discuss the factors wavering IPO confidence right now — coming off of 2023's pre-pandemic lows — and what criteria investors should be looking for in rising AI startups

"It was a meh IPO market and I think people looking to go out want more reinforcement and more encouragement for that," Keidan says. "The economy, the consumer sentiment, the consumer spend numbers are not as bad as people predicted but also they're not great."

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Editor's note: This article was written by Luke Carberry Mogan.

Video Transcript

JOSH LIPTON: 2023 was a tough year for IPOs. Total number of market debuts fell nearly 16% from the year prior. It's hitting pre-pandemic lows. Now some are hoping 2024 could bring a turnaround for the IPO market. To discuss, we're joined by Jon Keidan, Torch Capital Founder Managing Partner.

Jon, it is good to see you. Thank you for joining us. Maybe-- maybe, Jon, just start big picture. So last fall, there was a trickle of IPOs. Everybody got kind of excited or at least some of us did is Arm and Instacart and Klaviyo. Do you think that trickle here Jon does it turn to more of a stream in 2024? And what are the factors, the variables, that would depend on?

JON KEIDAN: So unfortunately, I don't think it's a stream. I think it will continue to be a trickle for the next year, at least for the first half for sure. Those IPOs did fine. At best, it was kind of a IPO market. And I think people looking to go out, want more reinforcement and more encouragement than that.

Also, the economy, the consumer sentiment, the consumer spend numbers are not as bad as people predicted, but also they're not great. And so they're those confident indicators have not really come-- been brought up. And then on top of that, the election, uncertainty. And so I think it's going to take one or two big IPOs to really open up and turn that trickle-- turn on the faucet essentially.

JULIE HYMAN: You told us during the break, neither Josh nor I was aware, it's the 10-year anniversary of the unicorn--

JON KEIDAN: Yes, it is.

JULIE HYMAN: --as a concept. And I joked with you that it should just be called the horse now, because there are so many of them. What was-- why was unicorn is because they were unique to have these giant valuations. So there's like all these companies waiting in the wings to exit in some way, or do they just stay private forever?

JON KEIDAN: Yeah. That's a great question. When Eileen Lee from Cowboy Ventures coined it 10 years ago, there were 14 unicorns. I think even five years ago, there were 284. And now they're over 1,200. So clearly, that's an astonishing number.

There will be a culling of the herd, no doubt. And some will probably turn into horses, and some may just not exist anymore. I mean, I think there's no question about the inflation evaluations over the last few years. Things have coming back down to Earth. Valuations are being reset. Companies are being acquired for not very much. And so I think that will put a lot of pressure.

And then, yeah, the IPO market is going to be a huge bottleneck on that. And there's just not enough IPOs to go around, let alone to enable that amount of mass of tech companies specifically.

JOSH LIPTON: There's been, Jon, another thing here the boom of interest in AI. You saw Microsoft just today hit 3 trillion market cap. In large part, investors like what they see, the way that companies integrating AI across the portfolio. For you as a venture investor, are you are you as excited about AI maybe as you were six months ago or nine months ago?

JON KEIDAN: So yes and no. More excited probably. But we're still really, really early. We think about search Google wasn't the first or second search engine. What ChatGPT proved out is that they actually changed consumer behavior. And in like a year or two, 180 million users are integrating with technology and engaging with technology in a totally different way than they had before.

You know, I think it is actually an iPhone moment. And it's going to change consumer behavior and change business behavior, change the amount of resources needed to build something. So lots of positives.

The negative is we're just still so early. And so we're very excited about it, but we're looking skeptically at who anointed winners are and will they be the winners. Yes, Google and Microsoft as big companies will be. But the underlying infrastructure layers and a lot of the application layers, there's going to be a lot of competition. And those two entities and then OpenAI could be gobbling up a lot of the early opportunities.

JULIE HYMAN: So if I'm a retail investor and don't have access to some of the private markets like you have access to and some of those startups, what am I looking for in terms of AI? What are the criteria that maybe think about that public market investors can also be thinking about?

JON KEIDAN: So on the infrastructure layer, it's widely complex and I'm not nearly smart enough to be able to comment effectively on that. When we talk about where it's the consumer or consumer-facing side, I think it comes down to pain points. Like, you still have to have a company that's solving a problem, and they're using AI to do that more effectively and more efficiently.

And there are two sides to this. One is the benefits to the consumer. On the other side, where I think it could change venture is it's probably going to get cheaper and cheaper for companies to be able to test, produce, use their data, market, target, whatever it is, which means they need less capital. And so what that will mean is that it will make it a lot easier for consumers to become creators and producers than they ever have been before, and also for small companies and new companies to be built and scale much faster, much more cheaply with less of a need for the heavy-handed capital that everyone needed in the last four or five years. So that's really exciting.

JULIE HYMAN: Yeah. Jon Keidan, thanks so much. Good to see you.

JON KEIDAN: Pleasure.

JULIE HYMAN: Appreciate it.

JON KEIDAN: Great to see you both.