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IPOs by Venture Capital-Backed Companies Decline

October 04, 2006|From Reuters

The number of venture capital-backed companies going public fell in the third quarter to a three-year low, but the pipeline of pending deals increased while recent offerings have performed well, an industry study found.

In the third quarter that ended Friday, eight venture-backed companies raised $934.2 million through initial public offerings, the lowest quarterly number since 2003, according to a survey by the National Venture Capital Assn. and Thomson Financial.

That is down from the 19 venture capital-backed companies that raised more than $2 billion during the second quarter and down from the year-earlier period, when 19 companies raised $1.5 billion, the two groups said in a news release Tuesday.

"The venture-backed IPO volume has fallen to alarmingly low levels, suggesting that the public markets are not the destination they once were for emerging growth companies," said Mark Heesen, president of the venture capital association.

Investors and investment bankers complain that stricter financial regulation and declining interest in small-cap companies has forced many start-up companies to either seek an acquisition or stay private longer.

Yet amid a seasonally slow summer, even acquisition activity involving venture capital-backed companies fell during the quarter, down to 74 deals valued at $2.7 billion, according to the venture capital group and Thomson.

Still, IPOs that do price have performed well. As of Friday, seven of the eight venture capital-backed offerings traded over their IPO price. And over the last 12 months, 58% of venture capital-backed companies trade above their offering price.

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