What if Gorilla Falls?
Date: Thursday , February 02, 2012
“It’s said that you can never count on a girl and a check. Both can bounce at any time.” This statement brings me to the optimistic scenario of tech IPOs in 2012. The initial public stock issuance of venture backed Linkedin, Groupon, Pandora, Zynga, Zillow and Impreva shares was a silver lining for many investors in 2011. There were 44 U.S. tech IPOs last year, nearly double the number of offerings of any other sector. Of these, around half were Internet companies, including four of the five largest Internet IPOs in U.S. history. As per the industry insights, investors are expecting a similar momentum and they believe that prospects are going to be strong in 2012 as Facebook might be a Gorilla in the room. But, what if the current choppy markets, are not in favor of technology IPOs? Well, it’s always good to have a Plan B.
The European debt situation, the Arab spring uncertainty, the forthcoming U.S and Congressional elections, the U.S. budget deficit and, mooted changes in the U.S. tax code for investors do not indicate a healthy season for IPO in 2012. Moreover, the investors are counting on most of the VC funded companies that are lining up for IPO and hope to have a successful cash exit. It is only then the Venture Capitalists will have clarity on successful funding cycle for their existing funds and be able to bring in healthy returns. If all this fall in right place, investors will be inclined to invest another round of funding in the portfolio companies. In short, the VCs are counting on eggs, which may or may not hatch.
If the eggs do not hatch, I feel that all this will lead companies switching to traditional model of entrepreneurship, where in more of this community will start counting on angel investors and crowd funding as raising VC funds is not going to be the easy way. Moreover this will lead startups to follow Lean Startup Approach, which is being adopted across the globe, changing the way companies are built and new products are launched. The lean startup method coined by Eric Ries, advocates the creation of rapid prototypes designed to test the market assumptions, and uses customer feedback to evolve them mush faster than the more traditional practices. The rise of smaller, fleet-footed companies in the lean startup mold is bringing changes in the venture financing, with funds as high as $500,000 or so from the angel investors, instead of traditional venture capital firms.
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