Paul Kedrosky has an interesting post predicting that 2006 is the end of the misery for venture-backed technology companies seeking an IPO exit and that 2007 will see a resurgence. It seems that he is suggesting that the supply of attractive tech equities is shrinking (or has shrunk enough), yet the demand for tech equities will remain constant or increase and the potential issuers are lacking in attractive exit options in the private market.
We know the tech IPO market will return eventually. I just do not know if the catalysts that Paul suggests are either true catalysts or are enough at this time. It is true that many new tech companies are generating meaningful revenues, and I am a firm believer that Web 2.0 does represent a fundamental value creation opportunity. I am struggling with identifying where the next set of leaders are in this new wave of value creation. Where are the standalone entities such as Amazon, eBay, Yahoo, and Google (among all of the other high-value product line staples, such as PayPal, etc.) in this new mix of prospective IPO candidates?
Reflecting back on the period of 1994-1997, I think many of us back then knew that Amazon, Yahoo, and eBay were going to be successes. Google came along later and became a verb, ensuring it’s place in line. Can you say the same about YouTube or Facebook? Maybe, but it is not as obvious in my view, unless I’m just getting to be too old.
What’s more, did we ever see the Web 1.0 leaders so actively trying to sell themselves to the highest bidder? While I suppose that with the IPO market being so dry, no alternative really exists. But if things are so great, who really cares what your valuation is or should be, and why sell now? So much private equity money is available now that if an awesome growth story exists of Google or even eBay like proportions, and that company needed capital, the private equity markets are awash in investment dollars to fuel the fire. Raise the cash, grow the business, and take it public when the time and market is right.
With all of the talk about how much FaceBook is worth and how much a bidder should pay, it seems that all may not be as great as it seems and some may be desperate to cash out before the party ends rather than just growing the thing like Google did. I don’t believe there has been as much talk about YouTube’s valuation by its insiders yet, and it may actually be the real deal. Time will tell.
I do hope Paul is right and 2007 is a resurgence of tech IPOs, even if it is just a moderate uptick (nobody is expecting a return to 1999 here). I would like to see a little more fundamental support in the prospective candidates that will fuel this return of the IPO market before getting my hopes up too high.