NEW YORK, Sept. 29, 2008 (GLOBE NEWSWIRE) -- According to a new study released today from PricewaterhouseCoopers LLP, the venture capital-backed IPO market is at a 30-year low, with the second quarter of 2008 marking the first time since 1978 that there have been zero venture capital-backed IPO's in a given quarter. The report, entitled "The Exit Slowdown and the New Venture Capital Landscape," discusses the current state of the IPO market and the trends and resulting impact this IPO slowdown could have on the venture capital (VC) industry. It includes data from the MoneyTree Report, a quarterly survey that tracks cash-for-equity investments by the professional VC community in private, emerging companies in the United States. The MoneyTree Report is produced by PricewaterhouseCoopers LLP and the National Venture Capital Association, based on data from Thomson Reuters.
"It has been interesting to observe how the trends and investment approaches in venture capital have shifted recently, almost as if to compensate for the bleak IPO market," said Tracy Lefteroff, global managing partner of the Venture Capital & Private Equity Practice at PricewaterhouseCoopers. "There is little indication that the market will recover anytime before the second quarter of 2009, however, venture capital investment continues to remain strong and steady."
Some of the key findings/predictions from the report include:
* The exit slowdown will contribute to the lengthening of the
VC-backed company life cycle, resulting in bigger, but fewer, IPO's
over the next few years.
-- Given the longer-life cycles of companies, VCs will likely
continue to invest more per company overall, resulting in larger
exits to maintain expected returns.
-- The average VC-backed IPOs are likely to become bigger than
historically seen, given the higher costs from complying with
Sarbanes-Oxley requirements combined with the rising expectation
that a threshold of about a $500 million market capitalization
offers a good chance to attract equity analyst coverage.
-- VCs will likely face more pressure to grow IPO candidates big
enough to succeed in a more rigorous and expensive IPO process.
* Despite the sharp decline in exits and poor economic conditions,
VCs are still investing and raising funds at a steady pace.
-- Even though VCs are braving an IPO drought and a thin M&A market,
the first half of 2008 showed that they are continuing to invest
at a fairly solid rate -- about $62 million higher than the same
period in 2007.
-- VC investment in start-ups has remained strong, while funding of
capital-intensive sectors such as Cleantech and Life Sciences
companies has continued. This suggests a continued trend of more
accelerated investment at both ends of the pipeline -- in
Start-up/Seed companies and in more mature companies, especially
those in the Later stage, based on MoneyTree(tm) Report findings.
* The austere economic conditions and stark IPO market isn't hurting
things across the board.
-- Waiting for the exit pendulum to swing back to a better time for
acquisitions and IPOs, VCs expect companies that are currently
exit-ready will be even more stable, stronger and more prepared
to IPO once the market improves a year or two from now.
-- As challenging as the exit slump is for venture capitalists, it
opens a window for strategic investors, who could potentially
see more attractive valuations of acquisition candidates that
fit their strategic goals.
* Venture capitalists may have a shift in their investment focus as a
result of the current state of the IPO market.
-- If M&A deals continue to represent an increasingly large piece
of the VC exit pie, the result positions VCs more as incubators
for the strategic investment community and less of a pipeline
producing a steady flow of IPOs.
-- If exits become less profitable going forward, VCs may become
less inclined to invest in capital-intensive and
longer-to-maturity start-ups.
-- With the VC-backed IPO market at a 30-year low and M&A deals
continuing to rise as a percentage of total exits, it is
probable that the public markets will become less receptive to
smaller, less mature companies, at least at the rate seen in
previous years.
"We will be monitoring closely the level of first-time fundings and early stage deals during the next twelve months as that is the investment area most vulnerable to a prolonged IPO drought," said Mark Heesen, president of the National Venture Capital Association. "Venture capitalists who have to maintain portfolio companies for longer than expected will be stretched for dollars to make new investments but, more importantly, they will be stretched for time. There are only so many boards that a VC can join and be effective. Without exits, venture capitalists will be hard pressed to commit to additional investments."
For more information and to access the full report, visit www.pwcmoneytree.com.
The PricewaterhouseCoopers Private Equity & Venture Capital Practice is part of the Global Technology Industry Group, www.pwcglobaltech.com. The group is comprised of industry professionals who deliver a broad spectrum of services to meet the needs of fast-growth technology start-ups and agile, global giants in key industry segments: networking & computers, software & Internet, semiconductors, life sciences and private equity & venture capital. PricewaterhouseCoopers is a recognized leader in each industry segment with services for technology clients in all stages of growth.
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