With the broader economy sputtering, venture capital firms are finding it increasingly difficult to generate returns through the sale or public listing of portfolio companies, according to a report released Tuesday.
Dow Jones VentureSource reported that in the second quarter of 2008 there were no initial public offerings of U.S. venture-backed companies. Moreover, liquidity generated via mergers and acquisitions fell to $4.7 billion with just 56 transactions completed.
"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 1988," 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.">>>MORE
Next up, earth2tech:
Looks like venture capitalists’ attempts to “go green” mean there are fewer venture-backed IPOs out there. Not a single venture-backed company went public in the second quarter of this year, says the New York Times this weekend, citing data from the National Venture Capital Association. And the article says that the fact that venture firms have increasingly invested in cleantech companies, which take longer to mature and reach the public markets, is partly to blame....MORE
Finally, from Research Recap:
...Slower growth and rising prices (inflation) cannot be good for equities. Rising rates, which is what will have to come, will not be good for any kind of financial assets.
Which, of course, leads me to venture capital. The value of your equity in a startup company is a financial asset. It may not be publicly traded but like all other financial assets it is ultimately worth the present value of future cash flows discounted at an interest rate that takes into account market rates of interest plus a risk premium.
We’ve been operating in a world where real interest rates have been hovering around zero (at least in the US). And that has propped up the value of equities and venture capital assets have been part of that prop-up.
All we have to do is look at the 70s to see the effect of low growth and high inflation (stagflation). Here is a chart of the Dow Jones Industrial Average during the 1970s.......It’s ironic that the title of the CIBC report is “Heading For The Exit Lane” because I think the exit lane will take longer to find and possibly be less rewarding in the coming years.
A Final Thought: This may mostly be good news for cleantech investors. As oil gets more expensive, cleantech and alt energy technologies can become commercially viable more quickly. But it takes a lot of money, biotech-like capital investments, to get most cleantech investments to profitability. So if the capital markets are going to be more difficult, it’s not all good news for cleantech. And the web clearly has a role to play in all of this too. More on that later.