The Death of VC-Backed IPOs?

The second quarter of 2008 is about to go down in history for its record number of VC-backed IPOs. And it won’t be a record high.

Not a single venture-backed company has gone public on U.S. exchanges since March, and none are scheduled to do so before Q2 ends next Monday. Not even a piddling one like that $5.68 million embarrassment from BioHeart in February. It is the first quarterly shutout in more than 30 years, which well predates the modern venture capital era.

The situation is so dire that the National Venture Capital Association sent an email last week to all its members, asking for feedback. It read: “Thus far in the second quarter of this year, there have been NO venture-backed IPOs. There has never been a quarter where this situation has occurred (since NVCA has been tracking such data). So that we can report on this situation accurately in the next week, we are asking our members to answer 4 short questions. It should take you less than a minute to complete – but your opinion will be critical to our messaging.”

I’m not providing a link to the multiple-choice questions, but they are as follows:

  1. When do you see the IPO window re-opening?
  2. How do you perceive the current attitude of venture-backed companies towards going public?
  3. How [critical] do you view the current IPO drought relative to the future health of the venture capital and entrepreneurial communities?
  4. What are the three largest factors you attribute to the current IPO drought? (Choose up to 3)
  • Sarbanes-Oxley
  • Credit crunch/mortgage crisis
  • Reduction in investment banks
  • Poor IPO candidates
  • Lack of analyst coverage
  • Skittish investors
  • Lack of companies interested in going public

It should be interesting to see what NVCA comes up with, particularly on the issue of issuer supply vs. market demand. I’ve heard some VCs suggest that IPOs are no longer their endgame, as M&A exits can prove equally lucrative and far more efficient. On the other hand, I recently heard NVCA president Mark Heesen argue that almost all VC home-runs have come via IPO.

We should have some thoughts coming next Tuesday, once the bad news becomes official.