In one of my posts back in December I suggested the Valley might be in for an IPO boom. This is based largely on comments from a partner friend of mine at PriceWaterhouse Coopers who told me that perhaps 40 companies were lining up to file their registration statements with the SEC.
Well, my friends at Pacific Crest Securities [a terrific investment bank for whom I have the highest regard] showed us an update on this at their annual Emerging Technologies Summit last week. They noted that the backlog of IPOs and registration has increased by 3x in the last six months - from 12 in September to 36 at the end of last month! Those 36 are pretty equally split between Semiconductor, Software, Internet, Clean Tech and Communications.
They believe that the trend of IPO pricings [the actual completion of the process] should accelerate into Q2 2010, and that it might indeed be the start of a longer-term revival in the IPO market. They base this on the four key themes - improving macro economic conditions; increasing strength of capital markets; a growing appetite among investors for a new "position" stocks, and the overall quality and robustness of the companies emerging in the market. This last one is very interesting because unlike many previous IPO booms [including, of course, the bubble in 2000] the companies we're seeing out there now are substantial, profitable businesses already. And we haven't even seen some of the potential megastars [Facebook and Twitter IPO's in 2010, anyone?] yet.
One other interesting stat. While there weren't many tech IPOs in 2009 [18, up from seven in 2008 but well below the 46 to 76 in each of the prior four years] the average performance of those 18 has been a 22% gain since pricing. By the way, just to give you a sense of the substance of those companies going public, the average revenues expected in 2010 from each of those 18 companies is almost $400 million, up almost 25% from 2009, and average earnings before taxes of $110 million. These companies have substance!!
The implications? Well, as I said before, the trickle-down effect in the Valley is enormous. From the sighs of relief from the VCs who, with liquidity events, can report improve returns to their investors and start their fundraising processes again [remember in that prior post of mine mentioned above, we noted that 54% of VCs said that the lack of exit's/liquidity events was their biggest worry] AND start funding some worthy startups again, to the prospects for employment [Valley unemployment continues to hover around 11%] to the injection of proceeds from stock option exercises and employee stock sales into our local economy.
Let's hear it for IPOs!!
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