Once upon a time, back in the days of yore, when entrepreneurs went by names like “Jeff Bezos”, Internet retailers were the investment rage, and Harvard still printed a face book of its students on paper, there was a ritual that many venture capital backed participated in. It was called the “initial public offering.”
Now, many of you are young and can’t remember the 1990s, so let me tell you about this ritual. The founders of companies would sell shares of those businesses to the public and the businesses would be listed on the stock exchange.
This ritual, my children, is rarely used anymore. Like other ancient tools like the typewriter and the phonograph, the IPO-as-exit-vehicle has been replaced by a more modern tool: the acquisition.
Dow Jones VentureSource recently released its counts of the number of venture capital-backed companies that exited in 2011, and the numbers tell the story of the lost IPO-as-exit-vehicle. The data show a slight rise in the number of acquisitions of VC-backed companies to nearly record levels (there were 6 more acquisitions in 2004 than there were last year) and a slight decline (by one) in the number of initial public offerings of venture-capital funded businesses last year. Moreover, as the chart below shows, last year the number of exits by acquisitions exceeded the number of exits by IPO by the largest amount since 1992, when Dow Jones VentureSource first began to produce exit data.
For those of you interested in ancient history, this pattern is far different than in 1992, which saw 69 more IPOs of venture capital-backed companies than acquisitions of those businesses.
Source: Created from data from Dow Jones VentureSource