Capital Markets

Venture-Backed IPOs Fell in 2005

''I don't think anyone thought the IPO market would be as bad as it was in 2005,'' says one observer.
Stephen TaubJanuary 4, 2006

Last year was not a good time for venture capital investors to cash out of their deals.

In 2005, 56 venture-backed initial public offerings raised a total of $4.5 billion. This represented a 40 percent decline from 2004, which saw 93 venture-backed IPOs, according to a report by Thomson Venture Economics and the National Venture Capital Association.

”It slipped badly,” said Mark G. Heesen, president of the trade group NVCA, according to The Boston Globe.. ”I don’t think anyone thought the IPO market would be as bad as it was in 2005.” For the market to improve, Heesen added in a statement, the investing public would need to become more bullish on technology, and “certain hurdles associated with the Sarbanes-Oxley Act” would need to be overcome.

In 2000, at the height of the Internet bubble, there were 264 venture-backed IPOs. That number plummeted to 41 the following year and bottomed at 24 in 2002.

In 2005, the technology sector saw 26 venture-backed companies raise a total of $2.6 billion. They included last year’s two largest offerings: IntercontinentalExchange Inc. and OptionsXpress Inc. A total of 23 life-sciences companies raised a total of $1.2 billion, while 7 non-high-technology companies raised $727.6 million.

The IPO market, of course, is one of the few ways venture capitalists and start-up executives can profit on their investments. Another is by selling their portfolio companies — a market that fared somewhat better in 2005.

According to the same study, the acquisitions market saw 330 transactions with a disclosed value of $14.4 billion, down only slightly from the prior year’s 339 deals valued at $15.4 billion. However, this worked out to an average disclosed deal value of $91.5 million in 2005, up from $83.4 million in 2004.