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Monday, April 13, 2009

End of the IPO anomaly?

In 2008, there were only six IPOs nationwide, compared to 365 twenty years earlier. The end of IPOs means that founders no longer run their companies, but instead get acquired by big firms and then quit to do something else.

Sunday’s Merc, presented its annual compilation of the Silicon Valley 150. One noticeable result was a reduction in the number of public companies and also of IPOs.

Columnist Chris O’Brien remarked on the trend:
From 2001 to 2008, there have been 90 IPOs in the valley, an average of 11 annually — and the last one was more than a year ago. Compare that with 331 IPOs in the years from 1990 to 1998, an average of 41 annually. The two years in between were so insane — producing 163 IPOs — that it's no use considering them for sake of comparisons.
We’ve long known that Silicon Valley has a higher rate of IPOs than in other countries, but the evidence also suggests it has a higher rate than the rest of the US.

In my own research on communications startups in San Diego, I’ve noticed a much lower rate of IPOs. By my most recent tally, there are eight public companies in the telecom cluster (a few were either acquired or died after their IPO).

So, I’m sorry to say, the data is starting to confirm my conjecture. The 1980s and 1990s offered an unusual window of opportunity for IPOs — both in terms of the availability of financing and the ability to create a new stand-alone company.

Acquisitions do have a few advantages: they are quicker, available to a wider range of firms, and less dependent on the cyclical capital markets. My mentor Charlie Jackson planned for an IPO but sold his company to Aldus in 1990 when the IPO market closed.

I wonder when (or if) the business (or engineering) school courses in entrepreneurship will notice the change, and adjust their curriculum accordingly.

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