800 public software companies already exist. Why IPO yours?

Every advisory firm publishes an IPO readiness checklist. Governance structure, SOX compliance, audited financials, and board composition. If you hit these marks, you're ready.

Except maybe you're not. That’s because the person who actually decides whether your company goes public isn't checking a list. She's asking a different question entirely: given 800 publicly traded software companies that are already liquid, already tracked, and already understood by the buy side, what is so compelling about this one that an institutional investor needs to own it?

Brittany Skoda runs that calculus for a living. As Global Head of Software Banking at Morgan Stanley, she’s completed more than 75 transactions for companies including Amazon, Dropbox, Google, and Tesla. When she evaluates whether a software company belongs in the public markets, she starts from the demand side—whether the public wants the company.

What does the banker actually screen for?

If your company has reached the bake-off, checked governance, financial controls, and audited statements off the advisory checklist are the cost of admission.

Skoda's bar starts higher and runs in a different direction.

"If I'm a public investor, I'm sitting there saying, what is so special or so unique about this company—the setup, the pricing, the narrative, whatever the case may be—that I need to own this versus this already public company that's liquid, I know how it trades?" — Brittany Skoda, Global Head of Software Banking, Morgan Stanley

The floor is hundreds of millions in revenue and a multi-billion dollar market cap. Below that, a public software company lives in a structural penalty box. It lacks the float for institutional investors to take a meaningful position, the analyst coverage to sustain the stock, and the liquidity for shareholders to get in or out without moving the price.

But scale alone doesn't clear the bar. Skoda screens for what she calls the "act two or act three." This is the evidence that the company's growth story extends beyond whatever got it here. Public investors are underwriting a thesis about the next several years. A company that can't articulate where the durable growth comes from past its current product cycle is a company the banker hesitates to take on the road.

This is where most founders and CFOs miscalibrate. They've been told IPO readiness is operational—and it is—but operational readiness is the part that consultants handle. The part that determines whether the process actually starts is narrative, and the narrative is judged by the banker months or years before the S-1 is filed.

The AI narrative is now a disqualifying factor for software IPOs

A company that clears the scale bar and has a credible growth story still faces a question that didn't exist three years ago.

"I would not want to take a company public today without having a really clear understanding of how I'm going to stand up there and give the answer to the public investor who is inevitably going to ask why is AI a tailwind and why is it a headwind. If you can't articulate that, it's going to be a tough road show." — Brittany Skoda, Global Head of Software Banking, Morgan Stanley

This is the question the banker asks before agreeing to run the process. Deloitte's 2026 IPO market outlook confirms the dynamic from the investor side: SaaS businesses without clear AI tailwinds face a wide valuation gap relative to companies that can articulate both the opportunity and the threat.

The binary framing matters. Every company has an answer to the question "how are you using AI?" The real question is: why is AI a tailwind and why is it a headwind? A CEO who can only articulate the upside hasn't thought hard enough. A CEO who can name both signals to the investor that management sees the landscape clearly, has stress-tested the business model against disruption scenarios, and has a plan that survives contact with reality.

The effect on the IPO pipeline is compounding. AI uncertainty has made it easier for public investors to default to the largest, most familiar positions, like the Mag 7 and other mega-caps with the resources and strategy to navigate whatever AI becomes. For a new issuer competing for those same institutional dollars, the AI answer has to be specific enough to overcome the investor's instinct to wait.

How did the IPO bar reset, and what does that mean for 2026?

The numbers reveal how much the market has contracted, and why the contraction isn't temporary.

"The bar to go public today is definitely high. We ended last year at around 20 IPOs—a typical year in technology would be about 35 IPOs a year. 2021 we had 124 IPOs." — Brittany Skoda, Global Head of Software Banking, Morgan Stanley

According to Foley & Lardner's 2026 outlook, only 48 companies went public in 2025 across all sectors, and just 17 were unicorns. Of those, 73% were in policy-aligned sectors, like AI, space tech, crypto, fintech, and defense. Software without a clear policy or AI tailwind was largely absent.

The temptation is to read this as an anomaly that will self-correct as rates normalize and market confidence returns. Skoda's framing suggests something more structural. The 2021 boom wasn't the baseline. The historical average of roughly 35 tech IPOs per year was the baseline. 2021 was the anomaly, and the market is returning to where it was. It just has a new mandatory layer (AI articulation) stacked on top of the old requirements.

The math gets harder when you account for the backlog. By Morgan Stanley's count, more than 1,300 so-called unicorns were funded through 2021. Not all of them would qualify today, as valuations have compressed, and some businesses haven't performed to their funding-round thesis. But the ones that do qualify are all competing for the same limited number of institutional allocations in a market that absorbs roughly 35 software IPOs in a strong year.

PwC and Crunchbase note that the median time to IPO has stretched past 11 years. The secondary market, now a $60B+ liquidity mechanism, has given companies a pressure valve. But while secondaries solve cap table problems, they don’t answer the question of whether the company belongs in the public markets.

How does sponsor coverage determine which companies reach the bake-off?

Everything above describes what the market demands. None of it explains how a company actually gets into the room where those demands are evaluated.

Skoda's own career illustrates the answer. The Hinge Health IPO mandate—one of the successful exits of 2025—wasn't won at the bake-off. It took 15 years of relationship threads between Morgan Stanley and the company's leadership. This includes Skoda's relationship with CFO James Budge dating back to his time at Genesis, a former colleague who became Budge's number two in finance, and Morgan Stanley's own experience as a Hinge Health customer. These independent threads, built over a decade and a half, converged when the IPO decision was made.

The companies that get into the IPO conversation are the companies whose bankers have tracked them across CFO transitions, board changes, PE sponsor involvement, and management team evolution. The ones that don't get into the conversation are the ones whose relationships with coverage bankers are transactional: a call when there's a deal to pitch, and silence in between.

For late-stage software companies and their private equity sponsors, this has a practical implication. The 18-24 months before an IPO isn't just about SOX compliance and audit committee formation. It's about the relationship infrastructure that determines whether the roadshow has momentum before it starts, including banker selection, investor seeding, analyst engagement.

The firms that track these relationships across years and across organizations are the ones that show up to the bake-off with a structural advantage, while trhe rest are pitching cold.

Frequently asked questions

What do public investors look for in a software IPO?

Public investors evaluate software IPOs on four dimensions: scale (hundreds of millions in revenue, multi-billion market cap), growth durability beyond the current product cycle (what Morgan Stanley's Brittany Skoda calls the "act two or act three"), a clear articulation of why AI is both a tailwind and a headwind to the business, and a narrative that explains why this specific company is worth owning versus 800+ liquid alternatives already trading in public markets.

Why is AI narrative required for software IPOs now?

AI narrative has become a disqualifying factor because public investors default to familiar, large-cap positions when uncertainty is high. A software company going public in 2026 must articulate both why AI accelerates its business and why AI threatens it, demonstrating that management understands the full landscape. Companies that can only describe the upside signal a lack of strategic depth, making the roadshow significantly harder.

How many software companies are already publicly traded?

More than 800 software companies currently trade on public exchanges, according to Morgan Stanley's Global Head of Software Banking, Brittany Skoda. This number creates a demand-side substitution problem for new IPOs: every institutional investor can already access liquid, well-covered software exposure without taking the risk of a new issue.

What is the IPO bar for software companies in 2026?

The 2026 IPO bar for software companies includes hundreds of millions in revenue, a multi-billion dollar market cap, a durable growth story that extends beyond the current product cycle, and a credible answer to both the AI tailwind and AI headwind questions. Operational readiness (SOX, governance, audited financials) is necessary but no longer sufficient. Demand-side factors now determine whether a banker agrees to run the process.

How do investment banks decide which companies to take public?

Investment banks evaluate IPO candidates through years of relationship-based coverage, not a single bake-off evaluation. The banker who takes a company public has typically tracked the company across multiple leadership transitions, business milestones, and market cycles. The decision to run an IPO process is based on the banker's conviction that institutional investors will want to own the stock. This is a judgment built through long-term relationships with both the company and the buy side.

The firms behind the biggest IPOs in software track their relationships across decades. See how it works.

Read next: How the right technology helps investment banks win more mandates