A Long and Winding Road - Now Even Longer

Newly released Silicon Valley Bank research finds that the road to exit for many VC-backed companies is longer. (We note however, that both biopharmaceutical and semiconductor companies appear to buck the trend.) The study doesn’t hypothesize about why exits are taking longer, but some obvious explanations come to mind:

The IPO market is struggling, to put it mildly.

The economic downturn has slowed growth of many new products and brands. It will take most longer to build traction and, likewise, growth and profitability.

For IPOs, investors are much more weary of “hot issue” IPOs after the tech bubble. Companies will have to build solid profits, not just growth, in order to go public, reports a Wall Street Journal article. Would be IPOs like Facebook and Twitter aren’t monitizing their customer bases well enough yet to make the leap.

On the M&A side, negotiation leverage has shifted to the buyer and, with the squeeze on credit, expectations for company fundamentals are higher. Buyers and investors in this market are looking for gems, not projects. It takes time for companies to put everything together for a merger.

While VCs might forlorn about the current state of exits, as with other areas of the financial industry, where there is a will, there tends to be a way.

See our post tomorrow on new transaction options for VC exits including micro-IPOs.