Venture capitalists were all but shut out of the IPO market in the third quarter, and their prospects in the traditionally slow fourth quarter are looking grim.
Just three private-equity-backed companies went public between July and September, and only one of them was venture backed. That tally is the lowest combined IPO total since the second quarter of 1978-as in 24 years ago.
With indexes of public technology stocks in the tank-plus renewed terrorist threats and the very real possibility of a war with Iraq-there is little or no appetite for venture-backed offerings.
An increasing number of VCs are so pessimistic about the market that they’re pulling their offerings. Eleven new private equity-backed companies filed to go public in the third quarter, but another 14 pulled or postponed their offerings.
“It’s a situation where you need to find someone to acquire your portfolio companies or else you’re going to have to keep holding on to them,” says an investor in a company that withdrew its S-1 filing last quarter. “It’s not an overstatement to say that the public markets are inaccessible.”
The third quarter’s only venture-backed IPO was a $30 million offering from HealtheTech, a maker of health monitoring devices that had previously raised approximately $70 million worth of private funding from Berringea, New England Partners, Palm Ventures, Proctor & Gamble Co. and others. To get the deal done, the Golden, Colo.-based company had to severely cut back the price of its offering. It planned to offer its shares for $14 to $16 each, but it ended up letting them go for $7.50 a pop. After it opened on July 12, the stock of the money-losing company quickly plummeted, closing at $4.27 on Oct. 11.