Corporate & Securities Law

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No Exit – No Venture Capital?

By broc (index)

No Exit – No Venture Capital?

The IPO market for startup companies has been in the doldrums for some time - it's been over 4 months since the last IPO in the US (although there could be this one soon)! According to this report from the National Venture Capital Association, there were only 6 venture-backed IPOs through the first three quarters of 2008. In contrast, in 2002, after the “dot-com bust”, there were 22 venture-backed IPOs.

The recent extreme volatility in the stock market hasn’t made the market for new issuances any easier. It's now reported that there were no IPOs in the month of September, the first time that has happened since this data has been tracked, starting in 1980.

IPOs have long been the favored exit strategy for venture capital investors – they provide liquidity and allows VCs to invest their money again. And the splashy returns of an offering - read Google IPO - don’t hurt their ability to raise new money either. But even the traditional alternative strategy to an IPO – selling your startup to a big public company – hasn’t been easy this year either. The NVCA reports that M&A activity is also down – even companies with strong balance sheets are getting more cautious about spending their cash.

If market turmoil continues into 2009, and the IPO market remains virtually closed, will VC investors scale back their investments in start-up companies? A potential slowdown in VC investing is just one of the many unanticipated results of the current volatility in the market. Thanks to Linda DeMelis, our new Silicon Valley hire for this entry!

Latest Developments in Capital Market Deals

We have posted the transcript for our recent popular webcast: "Latest Developments in Capital Market Deals."

Wanna Try Financial Suicide?

I got crazy a week ago and tried "day trading" for the first time in an effort to recoup some of my market losses. I bought an ETF that gives you two-times leverage selling short last Monday. Needless to say, I sweated through Election Day when the market rose 3% and then got lucky when the market dove the next two days in the biggest point drop over two days ever. I sold my position near the end of that second day and make out nicely.

But I got lucky. Trying to time the market like that would never work in the long run - and it's my opinion that these leveraged ETFs shouldn't be available to retail investors. In this market crash, retail investors in other countries got killed more than here because CDO-like securitizations were sold to them that were fortunately not sold in the US (and only because the SEC didn't allow Wall Street to sell them here; the Street pushed hard to get them approved). Which leads me to wonder why the SEC has approved the new three times leverage ETFs that began trading last week. Even this WSJ article notes they are not appropriate for retail investors...

- Broc Romanek

Full post as published by The Corporate Counsel.net Blog on November 11, 2008 (boomark / email).