The Burrill Report


The IPO market may be back in swing, but not to the level of activity that most venture capitalists say is necessary for the health of their business, according to a new survey. It found that more than 80 percent of the global venture capitalists who responded said IPO activity levels in their home countries are too low.

The 2011 Global Venture Capital Survey, sponsored by Deloitte and the National Venture Capital Association, found venture capitalists in the United States, China, Brazil, India, and France considered it most important to have an active IPO market in their home countries. But 91 percent considered the U.S. IPO market a critical element of the U.S. venture capital industry. U.S.-based venture capitalists, however, didn’t consider the vibrancy of the IPO market in other countries essential to their success. Only 36 percent said IPO markets elsewhere were essential to the success of the U.S. venture capital industry.

“The recovery of the IPO market, both here in the U.S. and abroad,” says Mark Heesen, president of the National Venture Capital Association, “is not a nicety, but a necessity for the future health of the global economy.”

The survey respondents blame the slowdown in IPO activity on a lack of several key drivers seen as necessary for a vibrant capital market. These include a strong investor appetite for equity in public companies (83 percent); the need for a stable economic environment (52 percent); and the need for more adequate stock analyst coverage (32 percent). In the United States, venture capitalists also cited the need for a competitive investment banking community (30 percent), for IPOs, and easier reporting for newly public companies (33 percent).

“Clearly the industry continues to feel the ripple effects of the global economic downturn—most notably in the form of limited exit opportunities,” says Mark Jensen, managing partner for Deloitte's U.S. venture capital services group and its U.S. audit and enterprise risk services. “However, with signs of improvement in the economy and easing of the liquidity crisis, the tide may be turning.”

Within the area of biopharmaceuticals, many venture capitalists say they expect to increase their activity during the next five years in China (83 percent), Brazil (73 percent), and India (64 percent). In Canada, the greatest percent of investors (38 percent), say they expect to decrease their investment levels.

Investors also seem bullish on healthcare services with venture investors in various geographies expecting to increase their investment levels in India (90 percent), Brazil (80 percent), China (75 percent), and Germany (71 percent).

“The recent run of global IPOs shows that innovative companies can come from anywhere,” says Deepak Kamra, general partner of Canaan Partners. “Some of the companies with the strongest potential to become profitable global leaders have a multinational focus from the beginning—leveraging R&D in Israel, manufacturing in China, services in India, and partnerships in the U.S.—and this is driving investors to increase their global coverage.”






June 23, 2011
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