More bad news for Startups and Venture Capitalists from the New York Times “bits” section about technology trends. Not only is the number of IPOs falling (zero in Q2 of 2008), but it also the number of mergers or aquisitions of startups appears to be way off as well.
Venture capital folks look to the most favorable “liquidity event” and generally that is an IPO where they may realize tens or even hundreds of times their original investments. Also favorable though generally offering less profit than an IPO is an aquisition or merger where other companies take over the startup without it going public.
I found this number very interesting and potentially alarming for Venture investors: An average of 8.6 years from startup to IPO, the longest in some time. Given that the present value of money is greater than future value, time horizons this long suggest, for example, that even a doubling of your VC money over that long period of time would represent only a “fair to poor” return compared to alternatives. Given that most startups never go IPO anyway it would seem that the risk factor is going way up for these investments.