Poor markets and few unique ideas roiling venture capital market
July 25, 2008
By Jake Sudderth
For years business journalists have been told by venture capitalists that they only pursue ideas, managers, and concepts that can evolve into public companies. As stock markets decline the venture market has proven to be a monumental failure for this purpose.
No venture-backed company went public in the second quarter, the first time this has occurred in three decades. The National Venture Capital Association describes the situation as a capital markets crisis for the start-up community.
"The U.S. venture capital industry is in the midst of the second-longest IPO drought we've seen since we started tracking the industry in 1992," said Jessica Canning, global research director for Dow Jones VentureSource. "The last completed public offering for a VC-backed company was in March and we’ve seen 10 companies withdraw IPO registrations since then."
M&A activity — the most popular way for angel and venture investors to cash in on their investments — fell as well. Merger deals have been moving at the slowest pace on record in at least a decade. A survey conducted by Thomson Reuters and the NVCA discovered that 81 percent of venture capitalists do not see the IPO window opening in 2008.
Dixon Doll, co-founder of Menlo Park based DCM and current NVCA chairman, recently stated, "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." While Doll calls on government leaders to promote venture opportunities that will result in public companies he is ignoring the reality that market speculation and growth are what really entice private investors.
With the Dow showing bear market tendencies and technology stocks showing overall stagnation since 2000; there does not appear to be venture incentives for wealthy investors on the horizon.
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