The volatility and huge valuation falls that public markets have suffered since the beginning of August have come as a blow to those companies looking to tap the public markets for money.
Three of the most closely-watched flotations have all US-based social network Facebook, US-based daily deals company Groupon and US-based gaming company Zynga, according to news provider Financial Times. Similarly, China-based Xunlei, backed by IDG Ventures, a venture affiliate of US publisher International and Google Ventures, the corporate search engine, has also postponed its float.
The news flow from others is muted. Those to have filed which have yet to list include US-based biopharmaceutical company Argos Therapeutics, US-based video streaming business Brightcove, China-based industrial chemicals maker Cathay Industrial Biotech, US-based bio-energy company Ceres, US-based renewable energy equipment manufacturer Enphase Energy, US-based chemicals company Genomatica, US-based IT consultant GlassHouse, India-based search engine Just Dial, US-based medical diagnostics company LipoScience, US-based clean energy company Luca Technologies and US-based energy effiency company Silver Spring Networks.
The Financial Times, using data from Dealogic, said 146 companies, seeking to raise $28.4bn, were on file with regulators to sell shares in the US, the longest queue since 2007. At this time last year it was 142 companies, seeking to raise $44.6bn.
But Dealogic also said 215 initial public offerings (IPOs) had been withdrawn or postponed so far this year, representing some $44.1bn. That is the most by this time in the year for at least 20 years, surpassing the previous high in 2008.
Some corporate venturing-backed companies have managed to list since the beginning of August, namely China-based online video company Tudou (backed by International Data Group), China-based automotive parts business Wuhu Yaxia (backed by Shanghai Zichen Electrical), US-based healthcare company GI Dynamics (backed by Medtronic and Johnson & Johnson), as well as Taiwanbased semiconductor equipment maker Gudeng (backed by Intel Capital).
The US, which for many years was regarded as the natural home of many technology companies, has been in particular turmoil. Three of the four recent successful corporate- venturing-backed companies listed outside the US, and Michael Carusi, a partner at venture firm Advanced Technology Ventures, told news provider Xconomy, GI Dynamics had listed in Australia because: "The US IPO market was closed."
The only corporate venturing-backed company to list in the US, Tudou, was hit by a 12% fall in its first day of trading on Nasdaq, and it currently trades below its listing price of $29 per share. In total, 63% of the companies to list in the US this year were trading below their listing price at press time, according to news provider Dow Jones, citing Dealogic data.
The change in sentiment is a swift reversal from the ebullient market driven by a wave of corporate venturing- backed listings this year, including that of US-based networking company LinkedIn, US-based vacation home rental company HomeAway and US-based music service all enjoyed large gains on their first days of trading.
The option of a sale to trade is still available, as demonstrated by US-based data storage device manufacturer BlueArc, which sold to trade buyer Hitachi Data Systems (HDS) early last month. Although terms were undisclosed, BlueArc was sold for a price approaching $600m, according to news provider VentureWire.
Gary Morgenthaler, a partner at US venture firm Morgenthaler Ventures, which backed BlueArc, said: "Concerns about European debt and economic slowdown in the US are weighing down global equity markets. The initial public offering window is now shut for all but the most compelling companies in the hottest market segments. BlueArc, however, is an emerging leader in the white-hot cloud storage market and remained on track for its IPO roadshow and pricing in the fourth quarter of 2011."
Paul Morris, a director at Dow Venture Capital, a corporate venturing unit of US-listed company Dow Chemical, said: "The [public] market is very challenging, particularly for venture-backed companies that are still early in their growth phase."
Yet the trade buyer is also unlikely to be more active than it has been in the recent past. Morris added: "There may be some smaller opportunistic deals, but for sizeable transactions buyers and sellers will be guided by longerterm valuation assessments."
The vast majority of companies which have filed for a float, or edged towards one, in recent months, are reconsidering or are still sitting on the sidelines.
Some in specialist niches in corporate venturing are not particularly concerned about IPO difficulties, because they believe a listing is the least likely option for much of their portfolio.
Sam Brasch, a director at Kaiser Permanente Ventures, the corporate venturing unit of the eponymous US healthcare provider, said: "With most medical device plays, we do not often consider an IPO a real option.
The public market has shown little to no interest in pre-revenue or early-revenue device companies for years now, so we mostly focus on merger and acquisition exits while building the company up to the more than $50m run rate we believe is a prerequisite for an IPO."
It may take a while for the public market window to open again. Morgenthaler said: "Markets have their own logic born of multiple participants with different perspectives, agendas, capital flows and trading paradigms. Today’s equity markets are heavily discounted by concerns over European debt instability, US deficits and political gridlock, and slowing global prospects of economic growth. These market uncertainties, compounded by computerised trading algorithms, create unprecedented volatility in equity prices. Until global sovereign debt concerns are resolved, market turbulence seems likely to persist and, quite possibly, worsen."
If such problems persist, expect venture-backed companies keen to exit on the public markets to face some anxious times ahead.
As public markets gyrate, many companies are finding a listing can provide them with a shop window for their company. BlueArc was the eighth venture-backed company since May to be acquired by a trade buyer after filing to list, according to news provider Venture Wire, while Google has reportedly sought to make 50 acquisitions this year.
Morgenthaler said BlueArc had received multiple offers "almost immediately" after its financial details were disclosed.
He added: "BlueArc’s management and board of directors weighed the prospect of a healthy IPO market in the fourth quarter of 2011 – which we viewed as likely but uncertain – versus a compelling offer from HDS, and chose the HDS offer."
Morgenthaler added: "The valuation HDS offered for BlueArc can hardly be called depressed. It represents more than five times total current-year revenues and – because HDS is a major BlueArc reseller – over eight times non-HDS current-year revenues."