Initial public offerings for start-up businesses fell to the lowest level in almost five years in the first quarter as the stock market slumped.
Only five start-ups backed by U.S. venture capital firms went public in the January-March period, down from 31 in the fourth quarter of 2007 and 19 in the year-earlier first quarter, according to a report issued by the National Venture Capital Assn.
"The market is locked up," said Mark Heesen, president of the trade group. "People are getting much more conservative," hurting venture-backed businesses that are considered riskier than established firms, he said.
Investors are backing off in part because they fear that profit estimates for start-ups are too high, said Paul Bard, who follows IPOs for Renaissance Capital in Greenwich, Conn. The Bloomberg IPO index, which measures the performance of stocks in the first year after their IPOs, has fallen 21% this year.
Venture capitalists will keep investing in start-ups despite the public equity market's weakness, but will require provisions to make sure young companies control hiring and other spending, said Dave Tabors, a partner at Waltham, Mass.-based Battery Ventures.
"Some of the best deals came out of the period after the tech bubble burst" in 2000, Tabors said. "The economy is a bigger factor in what we do than the IPO market. You can wait for the IPO market to reopen."