Venture Trends – Q3 numbers encouraging, but not exciting. Will the IPO market return?

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. 

Comments

[james]

Any thoughts on http://duckdown.blogspot.com/2006/03/venture-capital-and-enterprise.html

- You make good points about opportunities for innovation. My point remains that it's tougher to get paid for innovation today. Thanks for the link.

[Daniel Nerezov]

Great post Keith!

Why would all this money go into start ups if IPO weren't forthcoming?

If investees are gonna have to list for funds to book 30%+ IRR, I sure would hope that come hell or high water, the financial circles are gonna make the IPOs happen.

Sure, things like Flock might be a hard sell to the public, but i-bankers have done this before, they'll do it again, and it'd be unimaginable if abominations like Sarbanes and Oxley got in the way of capitalism.