Initial public offering activity among venture-backed companies has fallen off a cliff. That’s a top problem facing the venture capital industry right now, and, as can be imagined, the hot topic of discussion in the early hours today at the National Venture Capital Association’s (NVCA) Annual Meeting in Boston. The mood here at the Westin Boston Waterfront Hotel can be summed up by the comment of one member of the venture community to his counterpart near the registration desk: “These are certainly interesting times.”
Indeed, the venture industry is, to say the least, struggling. A chief concern is that the steep drop in IPOs—not only in the past year, but over the past decade—has forced venture firms to hold onto their shares of private portfolio companies longer than they would like. So the day here began with a press conference where the VC honchos (including new incoming NVCA chairman Terry McGuire, managing general partner at Waltham, MA-based Polaris Venture Partners, and Paul Maeder, general partner at Highland Capital Partners in Lexington, MA,) and others discussed their recommendations on how to improve the climate for venture-backed companies to go public. Before this month—when San Diego-based online education firm Bridgepoint Education, Chinese gaming company ChangYou, and language education software provider Rosetta Stone of Arlington, VA, all completed IPOs—there hadn’t been a single venture-backed company IPO for eight straight months.
For sure, venture firms can also get big returns on investing in companies when those companies are acquired. In fact, last year 87 percent of venture exits were via a merger or acquisition, according to the NVCA. Yet to hear Dixon Doll, outgoing chairman of the NVCA, the concern is that only 13 percent of venture exits last year stemmed from company IPOs. “The question that always comes up is that if you have a thriving M&A environment, why isn’t that good enough to have a flourishing VC industry,” said Doll, who is also a general partner at Menlo Park, CA-based venture firm DCM. “In order to have really successful M&A exits, the M&A buyers have to know that the company really can go public, or much of the leverage is lost and the value creation that we’re so concerned about is stifled.”
Thus, the NVCA is offering four main areas in need of change in order to improve IPO activity. Here they are:
—Improve the IPO ecosystem. This one involves
