The disparate performance of US initial public offerings in the first quarter is giving the market pause for thought.

While initial optimism for early 2025 ran high, recent events are bringing home the fact that the bar to list is higher than ever, and that issuers need to showcase in detail why investors should participate in their IPOs.

Venture Global [NYSE:VG] serves as a sobering example of this dynamic. Initially hailed as a marquee offering aligned with the Trump administration’s energy priorities, the stock has since plunged in post-listing trading, dragged down by valuation misalignment and Chinese tariffs on US LNG producers in retaliation for Trump’s own tariffs on China.

One banker described it as “an unfortunate outcome for a good company and for the sector” that has “changed the overall complexion” of market expectations.

Active investing is largely a game of competing against benchmark indices fueled by huge passive flows, and every new IPO presents a gamble for buysiders, who must weigh the risk of backing an untested company.

As this news service reported this week, North American IPOs have delivered a weighted return of just 1% year-to-date. However, excluding Venture Global, that figure rises to 11%. That one listing has decimated performance for deal players.

With YTD IPO volumes of USD 8.79bn so far, the start to the year for US listings has been solid, although not spectacular, and demand for new deals in a world dominated by passive flows to a handful of stocks remains a structural concern.

“Market breadth remains limited. We cannot expect new IPOs to perform like Nvidia or Meta,” said Jeff Bernstein, equity capital markets leader at advisory firm Riveron.

“We have yet to see ‘must-own’ names hitting the market that can weather both perceived volatility and a somewhat cautious buyside,” he added.

Issuers now face a stark reality: they must either present a unique and compelling story that resonates with current market conditions or adopt a far more realistic approach to valuation and pricing.

PwC’s IPO leader Mike Bellin pointed to the investor side of the equation, attributing some of the recent friction to heightened scrutiny of overly bullish valuations.

“Investors will not buy into overly optimistic stories,” he said. “Companies hitting the road for investor meetings need to clearly articulate why their premium is warranted.”

Bellin noted that, due to this uncertain environment, his team has seen several companies delay their IPO execution to gain additional clarity, regardless of sector.

Many planned deals are expected to shift to the latter half of 2Q, as issuers grapple with ‘known unknowns’, including tariffs, geopolitical tensions, the evolving makeup of the new administration, and regulatory shifts, he said.

Despite these challenges, there have been bright spots. SailPoint [NASDAQ:SAIL], backed by Thoma Bravo, has traded well in recent days. Energy company Flowco [NYSE:FLOC] has also performed relatively well, while Smithfield Foods [NASDAQ:SFD], despite an initial decline, is showing signs of a rebound.

Still, the market is looking for clearer signals on overall direction. Barclays’ head of Americas equity capital markets Robert Stowe said that more data points are needed before drawing conclusions about 2025’s IPO trajectory, given the slower-than-expected start.

The first half of the year, he said, is likely to be dominated by sponsor-backed IPOs.

“That’s where a lot of the supply is sitting; larger, more mature businesses backed by private equity sponsors,” he explained.

If market conditions hold, smaller, high-growth, and earlier-stage companies could follow.

That said, many in the market believe upcoming sponsor exits will need to impress buysiders with scale, financial track records and a compelling growth story, rather than aggressively priced, self-serving, exits for their owners.

One name being whispered as a potential game-changer is Medline, expected to list later this year. It is widely viewed as a beacon of hope, given its status as a highly successful business and its sheer size, which makes it likely to be considered for index inclusion immediately.

Bankers report that investor engagement remains strong based on pre-marketing exercises and recent roadshow activity.

But if the buyside is going to take a risk, issuers and their syndicates need to prove that it’s a risk worth taking.