Behind the Low IPO Numbers: Crosslink’s Feuille on Why Successful Companies Stay Private

Why aren’t many monstrously successful venture companies trying to go public?

Because if they did, they’d be forced to make money, rather than continue spending furiously to crush the competition.

That was one of the more upbeat responses I’ve heard to date in response to the standard question posed to VCs about when the IPO market will come back to life.

Not surprisingly, it came from someone who, till recently, was deep in fund-raising mode, wooing skeptical LPs on the notion that venture capital investments really do make money.

Jim Feuille, a general partner at Crosslink Capital, probably spends more time studying the relative valuations and competitive advantages of public and private companies than your average VC.  San Francisco-based Crosslink, which just raised a $200 million sixth fund, has carved out a niche managing a hybrid public and private portfolio that mixes cross-stage venture investments, PIPEs and straight-up purchases of public stock.

Feuille says that overall he’s optimistic about the IPO market, which he hopes will see a return to a state something like the late 1980s and early 1990s, when companies with comparatively modest market caps could still go public.

Moreover, he says, Sarbanes-Oxley is less of an encumbrance, now that companies know what to expect and the accounting industry has gotten more efficient in handling compliance. Where a few years ago it might’ve taken $4 million and two years to get SOX-compliant, now it’s closer to six months and a million bucks.

So way aren’t Facebook, et al filing to go public?

As Feuille sees it, right now Google is somewhat at a disadvantage to Facebook when it comes to dominating new markets because it has to show investors growing revenue and profits. A public company can’t easily do something, like, say, take a 50% cut on potential quarterly profits to invest in taking over the social networking space.

Private companies, on the other, don’t have such worries and, if they’re sought after enough, can raise all the money they want in private markets.