Dry times in venture-land: IPOs drop to zero in Q2

July 1, 2008 | Anthony Ha

If you’re wondering why we haven’t been covering much IPO news recently, it’s because there hasn’t been any — there were literally zero venture-backed IPOs in the second quarter of 2008.

This is the first quarter since 1978 that has gone by without a single venture-backed IPO, according to a new report from the National Venture Capital Association and Thomson Reuters. The figures are also down quite a bit from the high times of 2007, including the 25 IPOs during Q2 of that year, and the 31 IPOs in Q4. There were a total of 87 IPOs last year, while 2008 is a wee bit behind, with only five IPOs in its first half.

While “zero IPOs” is the most eye-catching figure, the report also shows a drop in the number of mergers and acquisitions — there were only 50 in Q2 2008, lower than any quarter in 2005, 2006 or 2007. The chart below shows both IPOs and mergers for the past 20 years (the final bar shows only the first half of 2008, of course).

The decline isn’t surprising given the broader economic climate, but when both traditional exit avenues dry up, that’s not just a bad sign for VCs, but for startups in general. Of course, the best startups are the ones that can weather tough times and are ready to come roaring back when the economy picks up again. (Meanwhile, to make it through the drought, some VCs are looking for alternate sources of liquidity.)

At the end of June, the NVCA surveyed its members and found that 81 percent of the 660-plus respondents said they don’t expect the IPO window to open anytime this year. The three leading causes for the drought are, in descending order, skittish investors, the credit crunch/mortgage crisis and the increased costs created by Sarbanes Oxley regulation, according to the survey.

Today’s VentureWire brings news of another company to take a hit from the economic climate — Bayhill Therapeutics, a Palo Alto, Calif.-based maker of autoimmune disease treatments, withdrew its IPO last week.

[Photo from the National Climactic Data Center]

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About the Author, Anthony Ha

Anthony Ha writes about enterprise technology, cloud computing, tech policy, and random cool startups. Before joining VentureBeat in January 2008, he worked at the Hollister Free Lance, where he won awards from the California Newspaper Publishers Association for breaking news coverage and writing. Anthony attended Stanford University from 2001 to 2006, and now lives in San Francisco. Reach him at anthony@venturebeat.com.

  • In my opinion, this is the continuing fallout from the extreme dot com boom/bust cycle of 1999 - 2003. The investment world (and regulatory system) has never really recovered from its skepticism about new, "IPO-ready" technology companies as a whole, regardless of individual success stories, so when other factors (credit crisis, economic uncertainty) increase the risk premium, the memory of being burned and scarred by tech companies is still vivid, and investors flee to quality, or sit on their hands.
  • ARevisitWarranted
    A year or so ago VentureBeat (then SiliconBeat) covered a few venture firms that were already on the death-bed: Crescendo, Worldview, Vantage, Vanguard. Not surprisingly, some of those firms (esp Worldview, Crescendo) claimed they still had companies that were poised to go public and prove they were right after all. Examples of companies touted then were Force 10 Networks, OnStor, Azul, 3ParData (all Worldview). 3Par went (or was pushed to go) public and guess where it's stock is now? Force10 and OnStor and others gobbled up a lot more money but haven't gone public and in this climate, are unlikely to go public any time soon. So what lies in their future? It'd be interesting to have Matt and his team meet up again with the Spreng, Orsak and Wei "champion investors" and ask what they have to say now after years of gobbling up LP money.
  • VC Watcher
    It's pretty obvious what's going on. In a weak financial climate, there's more scrutiny on fundamentals in an IPO. As a private company, you can spin up and lie all you want. As soon as you do your filings, you're under a big financial microscope. Where's the customers? What's the revenue stream? What about patents and IPR? Let's face it, when you lie long enough you start believing your own lies, and the disdain of fundamentals has been an addiction for funds here in SV. Watch them hold their breath, put more money into vapid companies, and wait out the downturn - assuming, of course, it's just a short downturn and not a longer-term trend. But don't expect them to react sensibly and focus on substance, even if it kills the M&A scene, in the pursuit of a home run IPO fantasy. They don't want to be VCs because it's too risky. They just want to be IVBs, but you can't get 10x this way. Any way you look at it you lose.