The IPO market has been frozen for 2 years. Arm and Instacart point to a thaw coming in 2024.

• Instacart stock soared 40% above its IPO price on Tuesday when it started trading.
• Before Tuesday, the grocery brand secured a $10.2 billion valuation fully diluted, far below the $39 billion valuation it earned during the pandemic.

Investors longing for the days of easy money and double-digit stock pops for newly public companies were treated to a trip down memory lane in the last week — two trips, in fact, as Instacart on Tuesday surged 40% in its debut just a few days after Arm jumped nearly 30% after its own IPO.

The successful initial public offerings and big first-day gains flash back to the boom days of the pandemic era, when valuations ballooned to meteoric heights, investors piled cash into unprofitable companies with huge growth prospects, and scores of startups went public.

When the Federal Reserve put an end to all that with aggressive rate hikes meant to fight inflation, the IPO market froze, drawing comparisons to the landscape after the dot-com bust. Share prices for companies that had gone public in 2020 and 2021 lost ground. Liquidity dried up and valuations cratered.

But now Instacart and Arm appear to be initiating the thaw.

Experts say venture capital firms, stock market investors, and any private company mulling an IPO will be closely monitoring the how newly-public names trade over the coming months. Whether they can continue trading above their IPO prices will indicate the market's appetite.

"We're looking at an IPO backlog of more than 200 companies, based on various data sources, and that's the highest it's been in more than two decades," Christian Munafo, the chief investment officer of Private Shares Fund, told Insider on Tuesday. "Many of these companies are waiting to see how the public market reacts to these first movers. But there's a tremendous amount of companies that we think are of high caliber that are just waiting."

The companies currently on the sideline, Munafo added, have been shifting their focus from growth to profitability.

"Even if you're a high-performing company, you're not going to get the valuation multiples you would have gotten 12 or 18 or 24 months ago," he said. "But I do think the public market getting behind companies [like Arm and Instacart] is a signal the market is opening up."

Arm was big, but Instacart is the real test

While Arm isn't characteristic of the typical IPO, given its history on the London Stock Exchange and decades of business, Instacart is a better barometer of market sentiment.

Arm secured a valuation of about $54.5 billion, about five times more than Instacart's $10.2 billion. And with the latter's current stage of development, it's a better proxy for for the broader IPO market, according to Craig Coben, former global head of equity capital markets at Bank of America.

"The IPO market is open but it's not indiscriminate," Coben told Insider on Tuesday. "The market is there for companies [looking to go public], but I think it's important for companies to have a track record of profitability before they test investors at this stage."

Meanwhile, marketing automation company Klaviyo is targeting a valuation of up to $9 billion in a coming IPO, within range of Instacart's, in what could be another gauge of investor appetite for more public debuts.

Momentum is building, but don't expect IPO tidal wave

Rachel Gerring, EY Americas IPO Leader, said that even if the likes of Arm, Instacart, and Klaviyo outperform, that doesn't guarantee the floodgates open to the same degree they did during the pandemic.

While recent IPOs don't exactly fit the typical "micro-cap" size, they are still encouraging as far as momentum and sentiment.

"These IPOs are a good litmus test," Gerring told Insider shortly after Instacart began trading Tuesday. "These are companies that are largely profitable, scaled, and have name recognition, collectively they are fitting what investors are looking for in this more risk-averse environment. It's a nice, predictable way for a market reopening to occur."

Ultimately, the macroeconomic environment could have more influence on the market than any one company that tests the waters. The backdrop of expensive borrowing costs and the prospect of rates staying higher into 2024 can spook investors and companies.

To Gerring, it's not just interest rates, but Fed Chair Jerome Powell's words that will determine how next year's market unfolds.

"What companies have been struggling with over the last year is the uncertainty of how far the Fed will go, for how long," she said. "That lack of predictability impacts companies, in terms of their ability to forecast. One additional hike may not heavily influence, but it's the tone that comes with it."