Initial public offerings in the United States has begun to look up over the past 12 months, but venture capitalists around the world say IPOs here and in their home countries remain too subdued to support a healthy investment environment.
The observation comes from the annual Global Venture Capital Survey conducted this spring by the National Venture Capital Association and Deloitte & Touche.
While the work may not have captured the enthusiasm of the LinkedIn offering one month ago, the study is a further sign of the financial imbalance in the industry between money invested and money returned from portfolio company exits.
In fact, the study found remarkable agreement on the point. A total of 80% of the 347 venture capitalists contacted in nine major industrial countries said they viewed IPO activity as too low in their home countries (see chart above for details).
But in an interesting switch on common wisdom, they blamed a general lack of investor interest rather than burdensome regulations for the slow pace of the markets. The most important ingredient for a vibrant public market is strong investor appetite, 83% of respondents said. Just over 50% pointed to a stable economic environment. In addition, 32% singled out the need for more stock analysts. Only 33% pointed to the necessity for easier reporting requirements, referring to the demands placed on newly public companies by regulations, such as the Sarbanes-Oxley Act in the United States.
Perhaps the survey’s most future-focused observation zeroed in on the markets VCs expect to be most receptive to venture-backed public offerings. When asked which stock exchanges have the most promise over the next five years, 87% pointed to the Nasdaq (see chart to left). The New York Stock Exchange came in second with 39% of VCs earmarking it.
Third on the list was the Shanghai Stock Exchange, with 33% of VCs identifying it, followed by the Hong Kong Stock Exchange and London’s AIM, both with 26%.
“The U.S. still is the preferred destination of the venture capital community,” noted Mark Jensen, a partner at Deloitte & Touche and national managing partner for its venture capital services.
But watch out. Venture is going global at a fast pace.
VCJ Alert: In the July 2011 issue of Venture Capital Journal, Mark Jensen of Deloitte & Touche, and Mark Heesen, of the National Venture Capital Association, discuss the impact of the global survey.