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TechCrunch ran an article yesterday mourning the fate the tech IPO, pointing to sub-par returns at higher risk unattractive.

According to Renaissance Capital, IPO returns across all sectors are down 3%. Over the past 3 years, IPO returns are tracking the S&P500 which hardly justifies the added risk of investing in them.

But the returns from venture backed IPOs are very different than the average tech IPO:

“March also saw a welcome uptick in venture capital-backed IPOs (5), driving the highest quarterly total (9) since the end of 2007. These deals vastly outperformed their non-venture peers with a first day pop of 14.3% (versus -0.1%) and total return of 14.8% (versus 2.9%). Interestingly, this group included the largest biotech IPO since 2002 in Ironwood (IRWD), and offerings from sectors that had been dormant since 2007, including fabless chip designed MaxLinear (MXL) and telecom equipment vendor Calix (CALX). The strong performance for these three deals suggests that US IPO investors are moving further out on the risk spectrum

– Renaissance Capital’s April briefing

A quick scan of the returns data for the venture backed IPOs listed above confirms a very different point of view: the venture backed IPO, while still at 10% of historical average volumes is delivering significant returns to investors.

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2 thoughts on “Mistaken identity: the case of the tech IPO

  1. But, Tom, you can’t be banking on IPOs to deliver the portfolio returns they once did. I expect the window will open this year pretty significantly, but public and private valuations will be almost on-par.

  2. I completely agree. The scale of IPOs hasn’t yet returned. But it’s great to see that the companies that are able to achieve public offerings are highly valued by the market.

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