OK, everyone’s watching the IPO market cautiously right now. Economic conditions are painful, and political unrest around the world isn’t helping the market out. So, it would stand to reason that venture capitalists – those professional risk-takers – would always eye the IPO market with a tad more suspicion. Well, they have good reason to do so. Let’s take a look at four good reasons, below, from the Wall Street Journal:
1. Market volatility: we’ve been writing about that a lot here (and at Inside Investor Relations) – and that’s an indicator of just how important market volatility is in today’s IPO decision making. There was a flight from the IPO market in August, and although the pipeline is filling, there aren’t many celebratory opening bells (with only one scheduled for this week).
2. Blocked exits: for the venture capital community, it’s the deals struck a few years ago that are relevant today. The tough market for IPO exits right now is ‘especially unsettling’ according to a Wall Street Journal report. The newspaper continues that the venture capital sector ‘endured a six-month dry period from late 2008 through early 2009 that was the worst stretch since data were first recorded in the 1970s, according to a report by Thomson Reuters and the National Venture Capital Association.’
3. Small sample: this year, only 42 sponsor-backed deals (i.e., backed by venture capital and private equity investors) have gone public in the US. That’s good 48 per cent of deal flow, and it’s down from 48 sponsor-backed deals at this point last year.
4. VC prominence: of the 42 sponsor-backed deals mentioned above, 30 involved venture capital, and the backlog we have now is 54 per cent VC-backed (57 of 66 sponsor-backed deals).
The good news is that venture-backed IPOs tend not to be as leveraged as those involving private equity – it’s always good to find the silver lining!
Source: Wall Street Journal
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