Funds dry up venture capital firms: report

02 July 2008

Mumbai: Venture capital firms are finding it increasingly difficult to tap market funds for initial public offers and merger deals, making exit strategies difficult. No venture-backed firm had entered the market with an initial public offer in the second quarter of 2008, according to reports.

The start-up community is in a capital-markets crisis, the first time in three years,  as no venture-backed company went public in the second quarter, the National Venture Capital Association said.

Two-thirds of VCs covered by a recent industry survey also pointed out their portfolio companies are less likely to want to enter the public markets today than they were three years ago, it said.

The market for venture-backed IPOs have plummeted from 43 in the first quarter of last year to just five in the current year quarter, the slowest pace since 2003, and few investors expect a rebound as economic growth tapers off and loan losses mount, the report by Dow Jones VentureSource said.

By end-June, 333 companies had gone public globally, raising $73.2 billion, 41 per cent lower than the amount raised by 702 firms a year ago, according to data and the lowest since 2005.

With the credit crunch weighing heavily on the investors, US venture capital funds also failed to make it to the IPO market for the first time since 1978. The slowdown in IPOs has also cut underwriting fees by almost 50 per cent, reports said.