Tags: ipo | drought | ending

Venture Capitalists See IPO Drought Ending

Thursday, 07 May 2009 01:29 PM

By Ellen Chang

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Investors should expect the lack of IPOs to end this year, says Fred Wilson, a partner at Union Square Ventures, on his blog.

"I think we will see the end of the IPO drought for venture backed companies within the next year, possibly by the end of this year," Wilson wrote.

"I don't know if this market rally we've been having is a head-fake or the end of the bear market. My gut says we'll see at least one more pronounced down move before we see bottom."

Wilson said investors will want to own stocks again soon and that venture-backed IPOs will be appealing.

He names five reasons why investors will want to buy them. Wilson says that venture capitalists are no longer "enemy No. 1 of public market investors."

Secondly, Wilson says there are lots of good companies just waiting for the right time in the market to file their IPOs.

Wilson said a third reason is that many of these companies will make good public ones because they are "subscription-based or annuity type business models."

A fourth reason is that VC-backed companies have "products they can understand, balance sheets with cash ... and growth without leverage."

Wilson says that restrictive Sarbanes Oxley legislation is no longer an issue when it comes to IPOs.

"I believe the market will take care of this problem as soon as we get a market that wants to purchase equities," he said.

"And my gut says that time will come sooner than most think."

Mitch Mumma, a venture capitalist, said the industry needs to work with the government to bring back a "robust IPO market.”

“What I believe goes unaddressed is that there are some structural changes that have occurred over the last 10 years, which won’t allow us to go ‘back to the future’ regarding IPOs," he told WRAL in Durham, N.C.

"Specifically, yearning for the days of the 'four horsemen' investment banks who were focused on technology IPOs won’t cause their return because decimalization has taken the economics out of being in that business. The four horsemen are gone and they aren’t coming back.”

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