IPOs in 2010
January 7th, 2010 - 64 Comments
After addressing a rough year for IPOs in 2009, Bloomberg BusinessWeek recently discussed the more positive outlook for 2010, although some skeptics aren’t as optimistic. In the article, Deepak Kamra, a partner at Canaan Partners, says the degree to which investors’ engage in risky behavior depends on the overall performance of the stock market. “Tell me how the Nasdaq does and I’ll tell you how many IPOs,” he says.
Smeal’s Tim Pollock tends to agree with Kamra, adding that IPOs are very risky and rely heavily on investor optimism and their willingness to take risks.
More from Pollock:
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If investors, particularly institutional investors who buy about 70 percent of all IPO shares issued, are being cautious and pessimistic about the market, then there aren’t going to be a lot of IPOs. Although, I do think there is a pent up supply available.
I’m sure some venture capitalists (VCs) are getting nervous if the funds they invested into a company are coming to a close and they can’t liquidate their positions. (VCs raise capital for a specific fund that typically has a ten-year life. At the of ten years, the fund is liquidated and all the principle and any gains are returned to the investors in the fund.)
If the stock market stays okay, then we will see some of the companies that have been profitable for a while go public. If those companies do all right, then younger companies that may be less profitable are likely to have the opportunity to go public as investors’ appetites for IPOs increase.
I don’t know that companies like Facebook and Twitter are profitable yet. If they are, they could probably go public and do okay, although not as well as if it were a hotter market. If they aren’t profitable at this point, they may want to wait until they can show some profits. They may still be able to go public simply because of their name recognition and celebrity, but once they do, if they aren’t making money, it will be a bumpy ride. Their stars may start to fade. This doesn’t mean they won’t survive, but the media and other folks may become more critical of them and the flaws in their business models.