Venture-backed IPOs are on track for their best quarter in over a year, according to deal-tracker Thomson Financial, as the new-issues market slowly revives from dormancy.
As many as 15 deals with venture capital funding are expected to price in the fourth quarter, up from 8 in the third quarter and the most since the 16 of the second quarter of 2002. Already, 7 VC offerings, valued at approximately $570 million, have begun trading since October.
"We are seeing a return of VC-backed IPOs," said Kathy Smith, an analyst at IPOHome.com.
The increase follows broad stock market gains: Since the beginning of the fourth quarter, the
is up 5%, the
is ahead 8%, and the
has tacked on 5%. With a better overall market, venture capitalists have been able to exit positions.
Until recently, VCs had been relegated to the IPO sidelines. There were only two venture-backed deals in the first half of the year, according to Thomson Financial. During that time, more established companies were going public, as investors very cautiously got back into the game.
Even now, experts say the uptick in venture offerings is modest. "VCs have been able to unwind some investments successfully. This has provided relief as they start to do fundraising," said Jesse Reyes, vice president of Thomson Venture Economics. "But it is hard to say this is a roaring comeback."
Volume aside, many of the recent venture offerings have been unsuccessful. Biotechs
( MYOG) all had VC money behind them, but the stocks are down an average of 7% since their debuts in October.
"Biotech is a magnet for venture money," said David Menlow, an analyst at IPOFinancial.com. "But investors do not want deals from that sector. They are focused on profitability."
The slew of biotech offerings last month chased a big rally in the group. "But I think the underwriters missed the boat," said Menlow. Moreover, the aftermarket performances suggest investors were not ready for biotechs, as some of their drugs are years away from being available to consumers.
Looking ahead, VC firms are likely to bring more proven companies public. At least one upcoming venture-backed deal, equipment leaser
Marlin Business Services
is making money.
Student loan processor
is a good recent example of a profitable venture capital-backed offering. Perhaps not coincidentally, shares of the company, which had been 23.1%-owned by Interlaken Investment Partners prior to its IPO, are up 29% since hitting the market in October.