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Mark Boslet of Dow Jones just wrote a good overview of IPO prospects. He notes that some U.S. venture-backed companies are considering listing on London's AIM Exchange. It provides both perspective and hope for the IPO market.
Venture data for the third quarter was reported in line with the trends of the first half. We’re starting to see more dollars returned from venture than invested, albeit modest returns.
According to VentureSource, U.S. Venture Capital Firms raised almost $16 billion for the first nine months of 2005. This seems to match the current investment pace, with slightly more than $16 billion going into companies thus far this year. Fortunately, liquidity through M&A is rising. Some 82 U.S. venture-backed companies were acquired for $21 billion in aggregate for the first nine months of 2005. In the third quarter, the median amount paid at almost $60 million. IPOs have only generated over $1.5 million thus far in 2005.
Without more IPOs, it will be hard to generate more exciting venture returns. Is there hope to see more IPOs in 2006? My contrarian instinct says yes. I can list all the reasons why not, including regulatory costs, risk adverse investor attitudes and the lack of research coverage. Still, there appear to be more venture-backed companies that are reaching revenue and profitability run rates that should be more attractive to IPO buyers. Some technology sectors, like security are seeing market growth, but have few public company vehicles for investment. Without a new technology wave, it’s hard to believe we’ll see a big swing in the IPO market, but there is room for positive surprised in 2006.
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