NEW YORK – The one-year returns for venture-backed initial public offerings ending September 30, have skyrocketed to 98.3% from 52.1% as of June 30, according to Venture Economics Information Services, a data company affiliated with VCJ. The year-end returns, for venture backed IPOs in 1998 were 46%, and five and ten year returns were 22.1% and 20.8%, respectively.
The nearly doubling of returns on the 180 venture-backed companies that held IPOs as of September 30 is indicative of the fever that has hit the venture capital industry of late. But as investors anticipate fourth quarter returns, a question looms: as lock-up periods for the scores of venture-backed companies that held IPOs in and after May start to expire, will investors place downward pressure on stock prices by selling their positions?
The exact scenario occurred with Healtheon Corp., a venture-backed company that went public February 11. Six months after its public debut on August 10, the lock-up period on the stock ended and insiders sold, forcing the stock price to lose 20% of its value.
Whether this downfall will happen to venture-backed stocks on an aggregated basis in upcoming months remains questionable. But according to Robert Fish, a partner at Coopers & Lybrand, and James Sullivan, a managing partner at Hambrecht & Quist, an extension of the lock-up period has not been seriously considered, indicating that sell-outs are not seen as a primary concern.