The IPO Market Closed After Facebook. That's a Good Thing

In June, when Goldman Sachs banker Anthony Noto warned at the investment bank’s F.ounders conference recently that the initial public offering market was effectively going to be closed to Silicon Valley startups all summer, it shook up the Valley. This came on the heels of Y Combinator founder Paul Graham’s warning that the bad performance of Facebook’s IPO will hurt the funding market for earlier-stage startups.

It was more than Facebook. Nearly all of the recent high-profile tech IPOs—including Groupon, Zynga, and Pandora—are trading below their IPO prices. Facebook’s stumble highlights a new reality: The IPO is no longer an important source of capital to fuel startups’ growth. It has become a way to transfer money from the public to institutional investors and little more.