Improving VC Exit Opportunities - Part 1

We expect to see an up-tick in middle market VC Exits in 2010. Throughout 2009, two of the traditional paths to liquidity, initial public offerings and acquisition, were not viable options for venture capital-backed middle market companies. As we look at 2010, while we continue to believe the IPO market will be largely closed to the lower middle market (sub-$500MM), we strongly believe that a stabilizing economy and increasingly shared expectations on growth and valuation will lead to opportunities for companies and investors seeking M&A exits. 

Public Market Access. Over the past eighteen months, the equity markets have been very selective, favoring larger, more established companies in the new issue market. While there is an increasing backlog of Q1/2010 public offerings, with plenty of established issuers taking advantage of recovering share prices, we expect investors to shy away from all but the highest quality IPO's through the first half of 2010. A related dynamic involves the size of these companies: Typical IPOs over the past five years have involved $200MM offerings and $500MM+ equity valuations. These graphs show overall and venture-backed US IPO activity over the last seven years, and the difficulty of pursuing an investment exit through the public markets for most venture capital investors.

IPO and M&A Data: Thomson Reuters and National Venture Capital Association