It now clear to all in the wake of this week's financial market meltdown that the IPO window is closed tight for the foreseeable future. In fact, I would argue that it never really reopened following the meltdown of the last tech bubble. Sure a few companies who built businesses with significant revenue went public, but for the most part, the equity markets have shown little interest in most technology companies during this decade!
So where does this leave VC funds with their portfolios of investment? For many, particularly in the Web 2.0 and consumer internet space, good exits have come from acquisition. Companies from Utube to Kaboodle have provided great investor returns by quickly exiting into the waiting arms of internet giants and media firms. Open source vendors have done equally well, with a long list of attractive exits as the remaining enterprise players gobble up these evangelists of a new business model. Consolidation is the SaaS market, while happening around SF.COM has not yet caught fire.
Yet the brass ring of the public markets remains down the road for those capable of reaching requisite scale. However, getting to this scale seems to take longer and entail more risk than most VC's are willing to bite off. In this light, I'm surprised we have not seen more private - private mergers designed to build companies geared for the public markets. I can think of several spaces with excellent growth prospects were private - private consolidation would make sense. Next generation database and analytics along with on-demand marketing automation are just two example of markets where numerous funded companies are getting decent traction but won't reach public market scale on their own in a reasonable timeframe. Certainly the complexities of private - private mergers can't be underestimated but with the public markets closed and M&A slowing, I would not be surprised if VC's became more flexible in getting deals done in this light.
Friday, September 19, 2008
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