IPO Market Shows Strength in Q3
This is an important indicator, because one of the biggest things that keeps startups from getting funded is the lack of a clear exit strategy. Though venture capitalists are paid to take risks, they want to see some relatively clear path for them to make back around ten times their investment in a matter of a few years. And when a sector doesn't look good, they get out completely (see Corning Sells VC Unit). However, an increase in mergers and acquisitions, along with a healthy IPO market, makes it easier for startups seeking funding to stay in business (see Is Startup M&A on the Rebound?).
There were a handful of telecom-related companies completing IPOs last quarter. SigmaTel Inc. (Nasdaq: SGTL), which makes chips for cell phones and other devices, raised $150 million while Netgear Inc. (Nasdaq: NTGR), a networking equipment maker, and iPass Inc. (Nasdaq: IPAS), a wireless remote access provider, hauled in $98 million each (see Netgear Shares Soar After IPO).
What's the impetus here? It could be several things. For one thing, investors may feel that a lot of private company valuations have corrected themselves way beyond what was artificially added during the Internet bubble. The major stock indexes also seem to be well on their way to recovery.
"The strong performance of the Nasdaq over the past few months is definitely contributing to the increasing numbers of venture-backed companies looking to do an IPO in the near future," says Jeanne Metzger, VP of business development and public affairs for the NVCA. To Ms. Metzger's point, the Nasdaq Composite Index has climbed in value more than 30 percent since the beginning of this year. Still, the big-box telecom equipment vendors -- both the wireline and wireless variety -- aren't in the clear. The venture-backed startups that have gone public so far this year haven't been solely dependent on the capital spending plans of big carriers. The same can't be said for several startups, including Valo Systems and Metro-Optix, which couldn't raise the cash needed to get into a big carrier network (see Copper Access Startups Tarnished and Xtera Nabs Metro-Optix Assets). The NVCA reports that there are 35 venture-backed companies that are now in registration to go public. Of these, however, the sole telecom industry concern is Evercom Systems, which provides phone services to correctional facilities. — Phil Harvey, Senior Editor, Light Reading