This is pretty bad news from yesterday, although I guess it is no surprise. The National Venture Capital Association announced that no venture-backed companies went public in the last quarter. That’s the first time since 1978 that the U.S. markets have gone three full months without a venture-backed IPO. I say no surprise because we’re so obviously in a recession, hoping it doesn’t become a depression.
For the first time since 1978, there were no venture-backed Initial Public Offerings (IPOs) in the second quarter of 2008, according to the Exit Poll report by the National Venture Capital Association (NVCA) and Thomson Reuters. The absence of any offerings this quarter follows an exceptionally slow first quarter when only five venture-backed companies went public. This number is a fraction of the first half of 2007, when 43 companies went public. According to the NVCA, the situation is concerning enough to be characterized as a capital markets crisis for the startup community.
And it gets worse with the additional information:
During the week of June 23, the NVCA surveyed its membership on the current IPO drought. The 660-plus responses that were received from venture capitalists across the country reinforced the concerns of the association, specifically:
- 81 percent of venture capitalists do not see the IPO window opening in 2008.
- Two-thirds of venture capitalists believe that venture-backed companies are less likely to want to go public today than they were three years ago.
- The three largest factors to which venture capitalists attribute the current IPO
drought are:
- Skittish investors (77 percent)
- Credit crunch/mortgage crisis (64 percent)
- Sarbanes-Oxley regulation (57 percent)
- Only 8 percent of venture capitalists characterize the current IPO drought as “not critical” to the future health of the venture capital and entrepreneurial communities.
I’m not suggesting we jump to any conclusions with this–your startup will make it or not on other factors than this–but still, it’s good to stay informed. The economy is really suffering the effects of a combination of downward factors.
Sarbanes-Oxley, by the way, is a big deal for some companies … that’s the law that requires a collection of new hoops regarding documentation and securities and so forth, that companies have to jump through to go public.
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.
