Tech IPO: Comeback Kid or Merger Catalyst?


After venture-backed IPOs went MIA in 2009, VentureBeat notes the oddly imprecise appearance of 15-17 IPOs in Q2 alone, close to 2007 levels.  But even VentureBeat sounds a cautious note, since post-IPO performance has been poor, with most securities trading below their opening price.  More interesting is that the median time from firm creation to IPO in this data set was about 5 years, with a total of $18 million in venture investment — a standard amount of capital, but the longest time period since the data began being collected in 1992.  And, as Fred Wilson notes, IPOs sure ain’t what they used to be, citing first the harsh expenses of an failed IPO, and public valuations that are lower than the private marketplace.

However, even if there is still uncertainty in the IPO exit, a study (gated) in the Journal of Business Venturing finds that companies acquired after filing for an IPO command a price premium as high as 26% over those that only look for acquirers.  The dual-track approach combines the weakness of both markets to provide multiple exit options as well as a clear signal to acquirers that they may not be able to revisit the deal at a later date.  This lesson should not be lost on emerging companies: if you are raising private capital, it may well be worth putting out a few additional hooks for strategic acquirers.