Benjamin Kuo’s Blog

Once upon a time, the life cycle of a startup was thus: get funded, pull in a couple of expansion rounds, grow your business to double digit millions, and then file for an IPO and hit the market. It was an age-old routine, and even though not all companies made it, it was a pretty routine path. Funding, expand, IPO — funding, expand, IPO — or at least, funding, expand, get bought.

In what seems to be (to me, at least) a fascinating side effect of a very difficult, if not impossible IPO market, it seems that lots of companies are getting to that last stage — ripe for an IPO — and just not getting any farther. These are quality companies — healthy earnings, double digit revenues, all the hallmarks of a firm ready for an IPO — but due to the market, just can’t make it happen. The biggest visible symptom of this is the number of strange “earnings releases” we’ve been seeing from companies, which are private, touting their earnings numbers, etc. as if they were really public. It’s been happening a lot lately, where we have been running into companies who really would like to IPO, but because of the markets, can’t.

Holden Parrish, contributing editor at our sister publication in Texas, texastechpulse.com, spoke with spoke with one of those companies — Austin, Texas-based NetQOS — this week, and heard the same story. Here in Southern California, there are a number of companies who would, in normal times, be IPO candidates, but instead, have to be content with making money but still locking in their venture investors. It seems like some companies who should have gone IPO a long time ago are returning to the VC trough — i.e. San Diego’s Active Networks and a huge $80M round this weekafter already once trying to hit the IPO market — while others have turned to private equity to fund their growth, instead of the public markets (witness things like the $100M investment in 2007 for Specific Media). It’s an odd dilemma: what do you do if your company is doing very well, is successful by all measures, but there’s no exit available for investors?

This entry was posted on Friday, August 29th, 2008 at 5:03 am and is filed under IPO. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.