Summary
While the public markets have shown signs of life, pressure is being placed on VC firms to invest and private companies in a position to go public. Don't expect too much activity until the economy improves.
Analysis
As the public markets see signs of life and periods of positive returns, pressure is being placed on VC firms to investment their money. For those private companies who are in the final stages of preparing for an IPO, the glimmerances of light are the sign to take the leap. For most companies looking to one-day become public, the market needs to show signs of consistency before they are willing to roll the dice.
For those companies in early stages or for those whose exit strategy is acquisition, the recession has forced a set-back on forward progress. For many, the economy has caused their P&L to sour, forcing a longer lead time in exiting. While VC firms are getting restless, they are being very cautious in investing at this point. This could be due to other portfolio companies are not living up to expectations and the equity owners want to right the ship on those investments on hand. It could be due to the fact that the market is allowing low multiples in pricing so the private companies are not getting the valuation they expect. There are private companies who are excelling in this economic cycle. Unfortunately the low valuations are slowing their efforts to raise capital.
In either case, the economy needs to improve so the private companies can strengthen. The preverbal turtle will stick its head further out of the shell as the light gets brighter...but it will take time. If the leading indicators pick-up in Q4 as some are predicting, expect a rebound in the spring for VC and IPO activity.
This author consults with leading institutions through GLG
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.
