The IPO market is cookin', but VCs aren't getting much of the grub. According to Bloomberg, the value of IPOs sold in the first quarter of 2005 rose 47% from last year to $10.1 billion, the highest amount since a record $18 billion was sold in the first quarter of 2000. But only 10 VC-backed companies raised $721 million through IPOs during the first quarter of this year--the lowest amount since the third quarter of 2003, according to Thomson Venture Economics and the National Venture Capital Assn. Mark Heesen of the NVCA attributes the poor showing to the strict requirements for going public these days, including dreaded SarbOx (sounds like a disease!) compliance. That partly explains it.
Truth is, more VC-backed companies went public last year than in the previous three years combined, and IPO investors have limited appetites for these small-cap stocks. A lot of mutual funds and hedge funds are as loaded up on small-cap IPO shares as they care to be, and that has weakened demand. Just ask Fastclick, which went public at $12 on Friday and closed at $11.50 today. Ouch.
Meanwhile, VC-backed companies are merging up a storm. In the first quarter of this year, 79 of them were bought for a total price of $7 billion, according to researcher VentureOne. That's the highest aggregate amount paid in four years. Getting acquired is cheaper and easier than going public these days (no SarbOx, for one thing). And the median amount paid last quarter was $60 million, the highest since the third quarter of 2000. So why not sell?