Venture-Backed IPO Dearth Helped by M&A Activity

October 6, 2011

The high expectations for a strong IPO year have been gradually ratcheted down over the course of the year as market conditions have deteriorated.  With the latest report on completed public offerings released by the National Venture Capital Association (NVCA), any hope of even a moderate IPO year is probably dashed all together.  Although not unexpected, the dismal showing of venture-capital backed IPOs last quarter punctuates what is turning out to be a generally bad year for venture capital investments.  On the bright side, sales of venture-backed companies are on the rise reaching a level in terms of dollar volume not seen since the end of 2009.

NVCA reported just five VC-backed IPOs in the third quarter which brought in nearly $450 million, far less than half of the $1.2 billion

venture-backed IPO

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raised in 2010 through 14 IPOs. The results come as a major disappointment for investors who had been anticipating a big year with companies like Groupon, Yelp, Zynga and Facebook lined up for big offerings.  Expectations were especially high after the hyper-hyped IPOs of LinkedIn and Zillow early in the year. Since then half of all IPOs listed this year have fallen under water, and the average return on IPOs has not been much better than the overall stock market. Current market conditions and deteriorating business performance has caused most of the big name IPOs to postpone their plans perhaps well into 2012.

The year is not a total bust for venture capital firms that have been able to capitalize on the resurgence of private equity and secondary sales.  In the third quarter there 101 VC-backed deals that brought in over $6 billion up from $4 billion in the same quarter last year.  Private equity firms and corporate-backed investors continue to benefit from lower market valuations and the appetite for startups continues to grow among institutional investors, esepcially in the IT sector where two-thirds of the deals were made.  Industry leaders may be lowering their expectations for the rest of the year, and into 2012 as the current economic instability and market volatility may keep investors at bay. Should that occur on top of the diminished IPO activity, it will be another big blow for venture capital firms




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