The ailing venture-backed IPO market continued to tank during the third quarter, according to a report released this week by Thomson Reuters and the National Venture Capital Association.
Just a single VC-backed company issued an IPO in the July-September quarter, amid only 58 merger and acquisition deals, the report showed. There were no IPOs over the second quarter, a 30-year low for the industry.
Market watchers say the financial meltdown is casting a shadow over venture-backed companies.
“The crisis in the financial markets has further exacerbated an already troubling situation in that most venture-backed companies are postponing or abandoning an IPO exit for the foreseeable future,” Mark Heesen, president of the NVCA, said in a statement. Still, he added most companies are “very strong” and will likely remain in the VC portfolio until the market rebounds.
Shaky market conditions also mean longer waits for VCs accustomed to quick returns. That's resulting in less funding to finance new companies, making VCs increasingly leery of risky investments, said Tracy Lefteroff, global managing partner of Venture Capital Practice at PricewaterhouseCoopers.
“It would in many situations force venture capitalists to cut back on what they may have invested in and continue to support their older companies,” he said.
Thirty-eight VC-backed companies are currently filed for IPOs with the SEC, down from 42 in the second quarter, the report showed. Twenty-eight have withdrawn from registration this year. Additionally, the lower M&A transaction volume reveals the skittishness of large corporations as they exercise more caution in their strategies to acquire VC-backed companies.
Despite the decline in exits, Lefteroff said he remains optimistic.
"Even though the market's been shot, the reality is that a lot of these venture-backed companies are beginning to build real businesses," he said. "I think you’ll see a very mature group of companies that access the IPO window when it opens again."