Seven years after the bursting of the tech bubble, the initial-public-offering market is showing signs of a long-awaited recovery. Last May was the most active month for venture-backed IPOs since October 2004, according to the National Venture Capital Association (NVCA). Eleven companies raised $1.6 billion, the highest dollar amount in three years.
"You've got a lot of inventory of high-quality companies that have been built and seasoned over the past five or six years that haven't really had an opportunity to exit," says Sunil Dhaliwal, a partner at Battery Ventures in Boston. The venture-capital firm has taken three portfolio companies public in the last three quarters and has two currently in registration, a marked uptick in activity, says Dhaliwal. "We had only three IPOs in the four years between 2001 and 2005."
Dhaliwal also says pension-fund managers and other institutional investors are showing more interest in IPOs. "The guys who manage public money are looking for returns somewhere," he says. "They're looking for growth."
A separate study by Ernst & Young, which looks at all initial public offerings, not just venture-backed issues, found that the fourth quarter of 2006 was the busiest for U.S. IPOs since 1999, with 72 companies raising $12.4 billion.
Still, "we're by no means declaring victory yet," says Mark Heesen, president of the NVCA. "But we are seeing really solid companies today. Many have had to live through the difficult post-bubble period, and they've been able to live through Sarbanes-Oxley. They have beaten down a lot of obstacles in the past seven years."