Going from unicorn to Wall Street may become more of a challenge

But transitioning from a startup to a publicly traded firm with more investors and increased scrutiny from Wall Street analysts and government regulators is not easy.

And now the Securities and Exchange Commission could be adding another road block. The Wall Street regulator recently announced a proposal to change some accounting rules for stock warrants that could make it more difficult for companies to go public through special purpose acquisition company mergers, or SPACs.

These blank check deals have become an increasingly popular way for companies to go public. It's how Virgin Galactic and DraftKings started trading. Southeast Asian ridesharing giant Grab, trading card maker Topps and office sharing firm WeWork are in the process of merging with SPACs as well.

"There has been so much SPAC activity that the market was getting indigestion," said Duncan Davidson, general partner with venture capital fund Bullpen Capital. "We need a pause."

For private companies that have yet to go public, it may be time to think twice about how soon they want to get to Wall Street — and whether it might make more sense to do so through a traditional initial public offering instead of a SPAC.

"It is now becoming a real conversation about whether to go public one way or not," said Craig Clay, president of global capital markets for Donnelley Financial Solutions, a top compliance advisory firm. "Companies looking to do an IPO realize it may be a longer road, but it is less risky."

Donnelly Financial Solutions has helped several top private companies go public recently, including Bumble, Poshmark and DoorDash, which did so via IPOs, as well as sexual health company hims & hers, which merged with a SPAC. The firm is working with WeWork on its SPAC deal too.

Clay told CNN Business that SPACs still make sense for companies that face a longer road to profitability, such as life sciences firms and electric vehicle startups.

Not all SPACs are overvalued, but beware the 'stupid' ones

And despite the SEC's concerns about SPACs and accounting, Clay thinks that quality deals will still get done, especially because the Federal Reserve is likely to keep interest rates near zero for the foreseeable future.

"The pandemic created an environment where the stock market went down sharply, but the resulting monetary policy response insured that there's more oxygen for deals," Clay said. "We're not done yet. The bull market has years to go."

Bullpen Capital's Davidson agreed. While he'd be wary of certain new stocks, particularly SPACs that are attracting investments from celebrities and athletes as a way to grab attention, that doesn't mean the entire market for IPOs and SPACs is a bubble.

"There are excesses in the SPAC world. There are already stupid SPACs," he said. "But that's normal in a boom. Some stocks will win big and others will lose. Investors have to play the field."

Davidson said that for companies in emerging, aspirational industries like space exploration, electric vehicles and alternative, plant-based foods, it makes the most sense to go public through SPACs. Older while older tech firms are likely better off pursuing IPOs.

He also thinks that companies listing shares directly to an exchange and not raising any new capital, as Coinbase and Palantir did recently, "will remain a rare beast."

But buying a portfolio of new stocks that have gone public through a variety of methods can still make sense for investors, said Josef Schuster, the founder of IPOX Schuster LLC, which runs several IPO indexes.

Nothing wrong with investing in older, more mature companies

Schuster said he's a little wary of the sky-high valuations for new tech companies, noting that the market is "saturated a bit" and that "there is no room for error with the pricings being as high as they are."

He also warned investors to not get seduced by the big first-day pops when a new stock hits the market.

Typically, the average investor doesn't benefit from that initial gain because they have to buy shares after the companies begin trading. Only insiders, hedge funds and other big institutional investors can cash in on the initial surge.

That's why Schuster thinks there are better opportunities for investors to buy recently public stocks in more stable and mature industries.

He points to the IPOs of airlines Sun Country and Frontier as well as jeans giant Levi Strauss as examples. He also likes Utz, the potato chip and pretzel maker that went public through a SPAC.

Looking ahead, Schuster is also bullish on Latham Group, a 65-year old maker of in-ground swimming pools that is planning to go public later this week with the ticker symbol "SWIM."

It just goes to show that a company doesn't have to be high tech to make it on Wall Street.