Funding for startups

IPO Market Dead in 2002

Just when you didn't need another indicator of how depressed a year 2002 was, along comes new data from Thomson Venture Economics (TVE) and the National Venture Capital Association (NVCA) that tallies the initial public offerings (IPOs) for venture-backed companies.

Twenty-two venture-backed IPOs raised $1.9 billion in the U.S. during 2002, compared to 35 companies that raised $2.8 billion in the public markets during the prior year, according to TVE and the NVCA. The bad news: Not a single one of those 22 IPOs came from the telecommunications or networking sectors.

Table 1: Analysis of Recent Years' IPOs
Year Number of IPOs in the U.S. Number of Venture Backed IPOs in the U.S. Total Venture Backed Offer Size ($M) Total Venture Backed Post-Offer Value ($M)
1997 537 131 4,704.5 20,838.8
1998 329 75 3,623.9 16,837.4
1999 480 233 17,804.7 114,864.6
2000 354 226 21,077.1 106,324.3
2001 88 35 2,890.2 13,417.3
Source: Thomson Venture Economics and the National Venture Capital Association

Some larger companies with no venture backing hopped into the IPO pool. China Telecommunications Corp. (NYSE: CHA) raised $1.4 billion in the U.S. public markets after trimming its offering size by half (see China Telecom IPO Lacks Sizzle). Venture-backed service provider Cogent Communications Group Inc. (Amex: COI) became a publicly held company this year, but did so by purchasing publicly held Allied Riser Communications Corp. and changing that company's stock symbol (see Cogent Cops Allied Riser).

In the first three quarters of 2002, more than 80 percent of the venture capital invested in telecom companies went to later stage or expansion rounds, according to data pulled from the latest MoneyTree survey. At one time, lots of late-stage financings tended to signal that a crop of companies was about to go public. In a tough economy, however, such financing doesn't necessarily do much more than keep the doors open a little longer.

"I think that telecom IPOs are going to continue to suffer from news of [network] overcapacity," says Jesse Reyes, a VP at TVE. "Overall, the industry has been tainted with the stigma of failed telecom [companies]. Because of that, we will more likely see more mergers than IPOs."

— Phil Harvey, Senior Editor, Light Reading
BobbyMax 12/5/2012 | 12:55:48 AM
re: IPO Market Dead in 2002 It is no surprise that out of 22 companies that have gone public in the year 2002, none was a telecom company. There are too many telecom companies both service providers and equipment manufacturers whose survival is questionable.

With the easy supply of money, thousands and thousands of pre-IPO cvompanies were funded by VCs. In almost all cases, these pre-IPO companies had similar products within a particular technology group. Many incompetent teams got money from the VCs without being scrutinized. Over 850 optical networking companies were finded in the US with only a few of them with meritorouis technologies. In the last 6 years about 25,000 high-tech companies were funded.

The chip industry business have become like making a brick. There are thousands and thousands of semiconductor companies. This chip making business have become like a cottage industry.

The telecom stocks have lost almost 90% of their value. Millions of telecom shareholders in the US have lost everything.

Flower 12/5/2012 | 12:55:47 AM
re: IPO Market Dead in 2002 Forever is a long time, you know .....
optical_fan 12/5/2012 | 12:55:46 AM
re: IPO Market Dead in 2002 Now is the time for M&A (Mergers and Acquisitions). The best opportunity for good companies with some revenues is to be acquired by the big fish. It will be awhile (few years at least) before the market is ready for new telecom related IPOs.

tmc1 12/5/2012 | 12:55:35 AM
re: IPO Market Dead in 2002 there is no magic to an IPO. it's not like the market says "ooh, telecom, no way". it comes down to revenue and profits. if a telecom company can show meaningful revenue growth over several quarters and profits or a near path to profits then they can go public just like any other company.

now show me a private telecom company with over 10-15M per quarter that is growing that revenue and approaching profitability.
optical_juggernaut 12/5/2012 | 12:55:24 AM
re: IPO Market Dead in 2002 Pre-IPO telecom startups building "God Boxes" or other products based on a lot of system integration and software will go nowhere. You just can't compete effectively with the large, incumbent equipment makers. There's very little "special sauce" in these products because the industry is maturing.

On the other hand, small, focused component shops have the best chance of IPO or acquisition in the next few years, but only if they can produce a product with an order of magnitude improvement in price/performance over what their larger competitors (e.g. JDSU, Agere) can offer.

Remember, the next-gen networking platforms that will be in demand a few years down the road are on the drawing boards now and I'm sure everyone's box looks pretty much the same on paper. They're looking for that competitve advantage (e.g. cost / 10) that will differentiate them from the rest of the pack. If you can offer this advantage when they need it, you'll succeed, even if you're a small startup.

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