IPO Exit – Still an elusive dream

Today’s successful IPO by venture-backed Silver Springs Networks, a technology provided to electric utilities, provides further encouragement to startup companies with regard to a “home run” exit. Positive funds flows into the public equity market have driven volumes and valuations up steadily since the middle of last year. However, despite the improved IPO environment, an IPO exit remains an elusive dream for most companies. The Fenwick & West VC survey we referenced in last week’s blog indicated there was a 10% increase year-over-year in IPOs in 2012. In addition, almost half of the VCs surveyed for the study believe that the IPO market will continue to improve in 2013. While the relative figures are encouraging the absolute numbers put this trend in perspective. According to the SEC, there were only 50 venture-backed IPOs in 2012 but over 350 exists through M&A. The SEC data also shows that the average age of IPO companies has almost doubled since 1999, from an average of less than four years to over 7 years in 2012. The bottom line – despite improvement in financial markets, an IPO exit is neither quick nor likely for startup companies. As a result, these companies need to manage their businesses with the mindset that an M&A exit is the probable liquidity event for their investors.

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