PRINT THIS PAGE Exit Poll report18/07/2008. Source: Thomson Reuters, NVCA. 
For the first time since 1978, there were no venture-backed IPOs in the second quarter of 2008, according to the Exit Poll report by the US National Venture Capital Association 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 characterised as a capital markets crisis for the start-up community. "Job creation engine for the United States economy, and that engine has completely shut down,” said Mark Heesen, president of the NVCA. “We need to put regulators, legislators, presidential candidates, and the private sector on notice that this situation represents a serious problem that will have long reaching economic implications if not addressed. We view this quarter as the ‘the canary in the coal mine’.”
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 3 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.
Dixon Doll, co-founder of Menlo Park based DCM and current NVCA chairman remarked, “While we clearly recognize that the IPO drought is being driven largely by a weak economy, there are other systemic factors that are making the IPO exit less attractive for high quality venture-backed companies. Our government and the private sector should be doing all that it can to encourage these innovative, high quality companies to enter the public markets and grow from there. The acquisition will always be an attractive and viable exit path for venture-backed companies, but the public offerings create visible, long term economic growth. Imagine the implications if Genentech, Google, or Intel decided to forgo a public offering and become acquired because the public market option was unappealing. The “next Genentech or Google” may be making that decision right now. The best choice for that company should also be the best choice for our capital markets system and our economy.”
Companies that were once venture-backed but are now public account for 10.3 million jobs and 18 percent of US GDP, according to a 2007 Global Insight Report.
The NVCA has been advocating for Sarbanes Oxley reform for several years as the cost for small companies to go public has risen dramatically under the law. This cost, coupled with a decreased market appetite for smaller cap companies, a lack of analyst coverage, and a lower investor appetite for technology stocks, has raised the bar considerably for venture-backed companies hoping to go public. The median age of a venture-backed company from founding date to IPO hit a 27 year high in 2007 at 8.6 years.
As of 6/30/2008, there were 42 venture-backed companies that have filed for an initial public offering with the SEC and are currently “in registration.” This number is down 40 percent from its 3-year high of 72 companies in Q3 2007.
Mergers and Acquisitions Volume Declines
In the second quarter of 2008, 50 venture-backed M&A deals were completed, 14 of which had an aggregate deal value of $2.4 billion. M&A volume of 120 transactions in the first half of 2008 was down 28 percent from the first half of 2007 when 169 transactions were completed. The average disclosed deal value for the quarter was $171.2 million.
The Information Technology sector dominated the venture-backed M&A landscape, with 36 deals and a disclosed total dollar value of $1.8 billion. Within this sector, Computer Software and Services companies accounted for the bulk of the target companies, with 15 transactions across this sector subset. Non-High Technology saw the next highest level of activity with 11 deals and a combined disclosed value $536.9 million. Finally, Life Sciences deals accounted for 3 exits with disclosed value for one transaction of $53.2 million.
The largest transaction of the quarter was the acquisition of social networking site operator Bebo, Inc. by AOL LLC. The transaction, valued at $850 million, was completed in May.
Deals bringing in the top returns, those with disclosed values greater than four times the venture investment, accounted for 55 percent of the total compared to 52 percent last quarter. Those deals returning less than the amount invested accounted for 27 percent of the quarter’s total, compared to 26 percent of the total last quarter.
** Disclosed deals that do not have a disclosed total investment amount are not included.
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The National Venture Capital Association (NVCA) represents approximately 480 venture capital and private equity firms. NVCA's mission is to foster greater understanding of the importance of venture capital to the U.S. economy and support entrepreneurial activity and innovation. According to a 2007 Global Insight study, venture-backed companies accounted for 10.4 million jobs and $2.3 trillion in revenue in the United States in 2006. The NVCA represents the public policy interests of the venture capital community, strives to maintain high professional standards, provides reliable industry data, sponsors professional development, and facilitates interaction among its members. For more information about the NVCA, please visit www.nvca.org.
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