QI IPO Figures Don’t Stack Up –

Cutback has been the VC industry buzzword during Q1 2002, but the industry?s most severe reductions have nothing to do with management fees or fund sizes. Instead, VCs are feeling the greatest pinch from their drastically shrinking piece of the IPO market pie.

According to figures from our VentureXpert database, the past three months represented the worst quarter for venture-backed initial public offerings in over two decades. Just four U.S.-based venture-backed companies priced IPOs in Q1 2002, the lowest such tally since the second quarter of 1978. It is also a 71% drop-off from Q4 2001, which saw 14 U.S.-based venture-backed companies make public debuts.

Analysis of Recent Quarters’ IPOs
Quarter Ending Number of U.S. IPOs Number of U.S. Venture- Backed IPOs Total Venture- Backed Offer Size ($Mill) Avg. Venture- Backed Offer Size ($Mill) Total Venture- Backed Post Offer Value ($Mill) Avg. Venture- Backed Post Offer Value ($Mill)
3/31/00 112 81 8,616.80 106.4 46,254.80 571
6/30/00 80 50 3,959.80 79.2 23,957.20 479.1
9/30/00 115 76 6,880.70 90.5 32,555.50 428.4
12/31/00 46 23 2,183.30 94.9 8093.5 351.9
3/31/01 31 9 650.1 72.2 2,902.30 322.5
6/30/01 30 9 710.5 78.9 4,220.60 469
9/30/01 12 5 279.9 56 994.6 198.9
12/31/01 37 14 1,447.70 103.4 5,912.40 422.3
3/31/02 13 4 376.3 94.1 2,398.00 599.5

This is not, of course, the first time that the number of VC-backed IPOs has taken a dip from the previous quarter. The first quarter of 2001, for example, suffered a 62% dip from Q4 2000.

The difference this time around, however, is that the overall IPO market did not suffer nearly as steep a decline as did the venture-backed niche. Of the over $6.91 billion raised by U.S.-based companies last quarter, just $376.3 million came from VC-backed offerings. That works out to approximately 5.4%, which is a far cry from the 54% stake that VC-backed offerings had in the overall IPO trough in Q4 2001. Moreover, the percentage shrinks even more if foreign-based companies pricing on U.S. markets ? such as a $2.3 billion IPO from Switzerland-based Alcon Inc. (ACL) — are thrown into the mix.

It is important to note that venture-backed IPO filings did not significantly decline in Q1 2002. The period saw 19 VC-backed companies file S-1 registration papers with the Securities and Exchange Commission (SEC), as opposed to a slightly higher 21 VC-backed companies in Q4 2001.

Saving Grace

While the overall VC-backed picture looked bleak last quarter, the four companies that managed to price have fared pretty well. As of the end of market close Wednesday, just one of the four was trading below its offering price.

?The silver lining in this dark cloud is that valuations seem to have stabilized and that venture-backed companies that have gone public are performing well,? says Mark Heesen, president of the National Venture Capital Association.

Leading the way in terms of overall value is WCI Communities Inc. (WCI), which priced a $131.1 million IPO on March 12. The Bonita Springs, Fla.-based homebuilder sold 6.9 million shares at $19 per share, and closed yesterday at $23.50 per share (19.2% gain). Venture investors in the company include Citicorp Venture Capital and the John & Catherine T. MacArthur Foundation.

Also trading up is Palo Alto, Calif.-based PayPal Inc., (PYPL) which was the first Internet-related offering to price an IPO since Loudcloud Inc. (LDCL) did it over a year ago. The $70.2 million deal priced at $13 per share on Feb. 15, and was at $18.13 per share at market close Wednesday (28.3% gain). PayPal is backed by investors such as Sequoia Capital (10.7% ownership), Nokia Ventures (9.6% ownership), Clearstone Venture Partners (6.9% ownership), Thiel Capital Management (5.6% ownership) and Madison Dearborn Partners (5.5% ownership).

Synaptics Inc. (SYNA), a San Jose, Calif.-based maker of computer touchpads, had the quarter?s smallest offering, but has experienced a larger price percentage hike than any of the other venture-backed offerings. It priced a $55 million deal on Jan. 21 at $11 per share, and closed yesterday at $17.60 per share (37.5% gain). Synaptics venture investors include National Semiconductor (15.2% ownership), Sprout Group (12.2% ownership), Technology Venture Investors (11.8% ownership), Kleiner Perkins Caufield & Byers (9.4% ownership), Oak Investment Partners (9.4% ownership), Delphi Ventures (6.3% ownership), and Foveon Inc. CEO Dr. Carver Mead (5.6% ownership).

The only loser in the bunch is ZymoGenetics Inc. (ZGEN), a Seattle-based biopharmaceutical company that executed a $120 million IPO on Feb. 1 at $12 per share. Despite dropping to under $9 a few weeks ago, however, the company?s stock has rebounded to finish yesterday at $11.96 per share (less than a 1% loss). VC investors include Pincus Equity Partners (33.1% ownership), Patricof & Co. Ventures (10.8%) and Apax Funds (5.1%).

As for a broader picture of VC-backed company results on the public markets, the Venture Economics Post-Venture Capital Index (PVCI), stood at ?17.4% as of market close on March 28. The PVCI is a market cap weighted index of the performance of stock of all venture-backed companies taken public over the past ten years. To keep daily track of the PVCI, check out the market charts at