January 4, 2012
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It's official: Despite a flurry of activity in the last quarter, 2011 was a crummy year for IPOs.
Eleven companies with at least one American venture capital investor went public in the fourth quarter, up slightly from the previous quarter but down 67 percent from the same period in 2010, says a new report from Thomson Reuters and the National Venture Capital Association.
The figures are similarly lackluster for amount of cash raised: $2.6 billion. That's nearly five times the amount in the third quarter, but a 34 percent drop from the fourth quarter of 2010.
Merger and acquisition activity also fell by 34 percent, according to the annual report, called the Exit Poll. Usually M&A activity picks up in the fourth quarter (it didn't this year), with venture firms looking for a return on their investments in startups.
“Despite a flurry of IPO activity at the end of 2011, the venture-backed IPO market still has a considerable way to go on the road to recovery,” NVCA president Mark Heesen said in a statement. He added: "We need at least double the offerings that we saw in 2011 to declare the market back on track."
According to the report, 52 venture-backed companies went public during the year, a 31 percent decline in volume compared to 2010.
Total dollars raised on the IPO market (a collective $9.9 billion) increased 41 percent over last year, but that's thanks mostly to eye-popping figures from a handful of companies. Just four companies—Zynga, Groupon, LinkedIn and Austin chip company Freescale Semiconductor—accounted for nearly half the money tech IPOs pulled in, according to Sam Hamadeh, CEO of New York-based PrivCo, which tracks financial data on private companies.
A separate report from Dow Jones Venture Source didn't brighten the picture. According to that report, the year's venture-backed mergers, acquisitions, buyouts and IPOs totaled $53.2 billion, or 26 percent less total capital raised than in 2010.
Of the IPOs, tech ones fared best. Tech firms made up a third of the year's venture-backed IPOs and accounted for more than 75 percent of the dollars raised.
The year's largest IPO: Russian search firm Yandex, which raised $1.3 billion with its stock offering in May. The largest U.S. IPO was Zynga, with $1 billion. The company began trading on the NASDAQ Dec. 16.
According to NVCA figures, there were 52 IPOs in 2011, 21 of which were from companies based in California. Thirty-nine of the IPOs were in the U.S. The 13 IPOs abroad accounted for about a third ($3.4 billion) of the total money raised in 2011.
Hamadeh told the San Jose Mercury News only two of the year's 10 largest tech IPOs currently are trading much above their IPO prices: LinkedIn and Angie's List, the Indianapolis-based company that helps find and review local contractors and service providers.
Why the disappointing market performances from so many companies? Weak business models, management turmoil, inflated valuations and "shady accounting practices," such as those that forced Groupon to restate its revenues in July.
Photo credit: iStock
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