Comparison of Private Equity and Venture-Backed IPOs to Private Sales

 

The Statistics

“Choosing the Exit Door”: Comparison of Private Equity and Venture-Backed IPOs to Private Sales

Venture-Backed IPOs. Traditionally, IPOs have been viewed as a preferred exit strat- egy for venture capital funds. Among other reasons, public offerings frequently result in the highest valuation and showcase successful investments. The table below summarizes the number of IPOs of venture-backed companies from 1992 to 2007.

However, exit by private sale (in both number and dollars) has outpaced exit by IPO in the United States. Since 2001, the number of private exits with disclosed values exceeded the number of IPO exits by approximately 9 to 1. Only at the 1999-2000 height of the public market bubble did the number of IPO exits begin to approach the number of private sale exits. During 2000, there were approximately 201 IPOs of venture-backed companies, compared with 462 private sale exits.

Year Number of Venture-Backed IPOs
   
2007 75
2006 56
2005 43
2004 67
2003 23
2002 18
2001 22
2000 201
1999 250
1992-1998 141 average per year

Source: http://www.IPOVitalSigns.com, © 2008 CCH, a Wolters Kluwer Company. Used by permission.

Private Equity-Backed IPOs.  Even with the increased popularity of “secondarybuyouts”—one private equity fund selling to another private equity fund—private equity- backed IPO exits have seen a dramatic increase since 2004. In 2006, 27% of U.S. IPOs (34% by proceeds) involved companies purportedly backed by private equity funds, ac- cording to Global IPO Trends Report 2007 by Ernst & Young. Nevertheless, private sales still dominate IPOs as an exit strategy for private-equity-backed companies. For instance, for 2006 it has been reported that there were 120 sales of private equity-backed compa- nies to other private equity funds alone, compared to 65 IPOs of private equity-backed companies. Note that statistics vary significantly with respect to the number of IPOs of companies that were backed by private equity sponsors.

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