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July 2, 2004

Lessons Learned?

Posted by at 3:23 PM

When looking back at the euphoria of the dot-com stock market of the late '90s, everyone has taken on a new mantra: Never again. Never again will we fall into the trap of quick gains rooted in little substance.

But look out: there were 29 venture-backed initial public offerings in the second quarter of 2004, double the number in the first quarter and the most such IPOs since the third quarter of 2000, according to a report issued today by Thomson Venture Economics and the National Venture Capital Association. Those 29 offerings raised $2.1 billion, marking the third consecutive quarter in which the offering amount exceeded $1 billion. The report also said there were another 79 companies already filed with the Securities and Exchange Commission and weeding their way through the IPO pipeline. Uh oh?

Not so fast. Deep breath. Remember our mantra. Returns on the second quarter IPOs were only about 18 percent, said Thomson. You'd fire your broker if you didn't get that in the first hour of trading during the bubble. Additionally, the median age of the venture-backed companies going public during the quarter was nearly 7 years. The median age during the sizzling second quarter of 1999 was half that.

Does this look like lessons have been learned? Hard to tell. But I'd never say never.

2 Comments

Posted by: iProceed.com at July 6, 2004 9:45 AM

I recently attended a conference for entrepreneurs outside of Boston, and of course, there were as many venture capitalists as entrepreneurs. What am I hearing?
(1) There is a ton of money lying around for good business ideas (defined as robust business plans, hope for value creation in the foreseeable future, paradigm shifts in business models, etc.).
(2) Looking at market potential of about $100-200 MM and the company should have the potential to be a market leader.
(3) Keep a close eye on capital intensity. There is a reluctance to invest in highly capital intensive businesses, e.g., Webvan

What also impressed and intrigued me was that entrepreneurs were not just walking around with ideas that they wanted someone to fund. Most entrepreneurs were developing their businesses, taking small steps on their own, putting in their own money till they felt that they were ready for prime time, and being very deliberate about approaching investors.

Posted by: Dan at October 7, 2004 7:57 AM

Hard to tell. But I'd never say never.
Sure!

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