Capital Markets

Arid Venture IPO Market Likely to Drag On

Report shows that there were no venture-backed offerings in the latest fourth quarter.
Stephen TaubJanuary 6, 2009

The 2008 desert known as venture-backed initial public offerings was devoid of oases in the fourth quarter.

And for the entire year there were just six such IPO exits, according to a year-end report from the National Venture Capital Association (NVCA) and Thomson Reuters. This was the fewest annual venture-backed offerings since 1977, when there were also six IPO exits.

In a sign that much more economic improvement will be needed before there is any significant upturn, the report noted that the 28 venture-backed companies currently filed for an IPOs with the Securities and Exchange Commission are 10 fewer than the number in registration at the end of the 2008 third quarter. As of Dec. 31, five of the six venture-backed companies that went public during 2008 were trading below their offering price.

Also, there were 40 venture-backed IPOs withdrawn from registration in 2008.

In terms of overall merger-and-acquisition exits, there were only 37 in the fourth quarter — and just 260 transactions in all of 2008, according to preliminary figures. This was the first year since 2003 when there were fewer than 300 venture-backed acquisitions.

“The most significant impact of the U.S. financial crisis on the venture capital industry has clearly taken place in the exit markets,” said Mark Heesen, NVCA president. “The inability of our strongest companies to go public and the softening of acquisitions activity continue to have a major ripple effect that now reaches every stage of the venture investment lifecycle.

In a separate study, Dow Jones VentureSource found the number of venture-backed IPOs dropping from 76 to 7 between 2007 and 2008, according to Reuters. Both surveys, however, counted just one venture-backed IPO after the first quarter of 2008.

In 2007 there were 86 venture-backed IPOs, up from 57 in each of the two previous years, according to the NVCA report. The six IPOs in 2008 raised $470 million, far below the $10.3-billion level in 2007, and $5.1 billion in 2006.

Heesen said that new investments and fundraising will slow considerably in 2009, at least until the exit markets reopen, and the pipeline is cleared.