Staring Us In The Face(book)...

Monday Feb 6, 2012 by Michael Greeley - General Partner, Flybridge Capital Partners

On the eve of the historic Facebook IPO roadshow, I spent some time looking at the 4Q11 IPO data (courtesy of Campton Private Equity Advisors) this weekend. VC’s everywhere are hoping that Facebook will unleash of wave of public offerings and meaningfully improve investor sentiment towards venture-backed IPO’s. Arguably, though, Facebook is so unlike any other company sitting in VC portfolios that it may be hard to draw any immediate conclusions based on this IPO, which is why I was interested in looking at a broader cohort of recent IPO data to gauge where the market might be heading.

Somewhat surprisingly there were only 10 venture-backed IPO’s in 4Q11, led by Groupon and Zynga, which was double the number of IPO’s in 3Q11. For the entire year, there were 40 IPO’s which compared unfavorably to the 45 in 2010. The backlog at the end of 2011 was 57 venture-backed companies which compared nicely to the 44 and 28 at the end of 2010 and 2009, respectively. Unfortunately the average number of days in registration for these companies was 225; 8 companies have been waiting more than 365 days. Fifty of the 57 IPO’s in registration are raising between $50 – $150 million, only one is raising less than $50 million. The average amount of equity invested prior to IPO was $116 million.

More troublesome though was the post-IPO trading performance many of these 4Q11 offerings experienced. Three of these IPO’s are trading below the price they came out. Three of the 10 IPO’s in 4Q11 priced above their initial offering range, while four IPO’s priced below their initial range.  

Here’s a bunch of other 4Q11 data:

• Average size of IPO was $256 million; Zynga was the largest at $1 billion
• Average IPO market cap was $2.5 billion; Groupon was the largest at $12.8 billion
• 50% of the IPO’s were in the IT sector, 20% were healthcare
• Median time of all 2011 IPO’s from initial equity funding was 6.4 years, an improvement from the 7.4 years for the class of 2010
• The average first day performance in 4Q11 was almost an increase of 16% although over the past 12 months, average IPO performance for all 2011 IPO’s was negative 6.4%
• Average revenue rate for 4Q11 IPO’s was $380 million; the median was $90 million (data skewed by the $1.7 billion revenue for Groupon)
• The enterprise value to revenue run rate multiple was 5.6x which makes the ~20x multiple for Facebook look very lofty indeed
• Only 4 of the 10 IPO’s in 4Q11 were profitable
• Average percentage of shares issued post-IPO was 19%, although Groupon was 5%
• Greylock had the most IPO’s in 4Q11 with 5
• Morgan Stanley was lead manager for 15 IPO’s last year; Goldman was second at 14, which was tied with J.P. Morgan

So what do I make of all these data? I think the IPO market is still pretty weak. The companies that are able to get public have raised nearly $120 million beforehand, are generating significant revenues, and still they sit in the queue for a long time, waiting for the IPO window to crack open. There are thousands of venture-backed companies launched every year and yet only 40 were able to go public last year. And even when they made it through that gauntlet, their stock prices tended to trade down.

The good news is that Facebook is unlike any other venture-backed company waiting to get public so none of these data matter.

Michael Greeley is a General Partner at Flybridge Capital Partners.  You can find this post, as well as additional content on his blog called On the Flying Bridge.

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