2013 doesn't look good for exits (no matter what some would have you believe)
Ernst & Young is typically known for insightful commentary, particularly around the startup and IPO realm. But either its year-end IPO update is a joke or they're living in another world.
Released in December, E&Y trumpeted a stronger global IPO market, as 2012 came to a close and expected a strong 2013. It was filed from the London office, which is even stranger given the state Europe's economy is in. VentureBeat took this a bizarre step further by predicting that Twitter, Box.com, Square, and -- I'm not joking-- LivingSocial would all file next year.
Twitter has already said it will not file anytime soon. 2013 would also be premature for Box and especially Square which still has a lot of basic blocking-and-tackling left in its company. And even if Twitter were filing, there's exactly zero evidence they have the numbers to make this the "social IPO of the decade," as VB claims. Facebook -- struggling or not -- is still a far bigger company.
We've covered the state of LivingSocial, and according to the most bullish reports from its own investor, it's only now after a hard fought 2012 scrapped back to break even. But even if it was a raging success the idea that there's any Wall Street demand for the No. 2 daily deals site in the wake of Groupon's performance is... bizarre, to say the least.
Indeed, as has been covered in detail, the markets absolutely hate technology right now -- Workday and LinkedIn notwithstanding. No one who has the option of waiting is teeing up an immediate 2013 IPO, at least not in the Internet space. Even companies like Atlassian and Gilt, which have been pretty open for some time about their plans to go and likely will at some point this year, are no doubt watching market conditions closely. If you can wait a few months for the market's mood to shift, why wouldn't you?
A much more sober -- and by that I mean grounded in basic reality -- report came out from Dow Jones today. It summed up how the venture-backed world fared 2012 in terms of liquidity and -- I know you're all sick of hearing it -- but a lot of it had to do with Facebook.
Most of the activity came early in 2012, and it was timed to capitalize on the excitement around Facebook, researchers said. When that issue didn't do well, it destroyed a lot of that momentum.
As I wrote a few days ago, after years of anticipation and given the gargantuan size the stakes for this IPO were just huge, and the venture backed world is still feeling the ripple effects. Sorry, E&Y, but merely changing to a new calendar doesn't reverse it.
Some facts from Dow Jones:
- 2012 was the best year for IPOs since 2000. Fifty venture backed companies raised $11.2 billion, a whopping 109 percent increase from 2011. Hooray! Oh, wait. A huge 61 percent of that was one company. You guessed it: Facebook.
- Beyond that business and financial services -- not Internet companies -- were the strongest performing category. LifeLock and Workday performed the best. And as we've written, assuming there's another Workday in the queue is like assuming there's another Facebook in the queue. Comparing, say, SugarCRM to Workday is like comparing a mule to a Tesla. Wall Street investors will actually look at company's fundamentals, not just buy shares because they have enterprise slapped on them.
- I'm not sure where E&Y gets that the year ended well. According to Dow Jones, only eight IPOs raised $1.2 billion in the fourth quarter, a whopping 48 percent decrease from last year. In the US, 26 companies were in registration, and only two of them filed in the fourth quarter.
- It's taking even longer. People keep missing that the blockbuster IPOs of last year took forever to get here. The median amount of time it took a company to reach an IPO increased to 7.4 years even in this banner 2012. That's up from 6.4 years in 2011. This has been a long-term trend in the venture business and the reason that growth funds have proliferated in recent years. Combined with an atrocious market, it makes it even less likely that relatively young companies like Square would be going public in 2013. The one macro-consumer play that has held up -- LinkedIn --spent a decade private before filing.
- M&A wasn't much better in 2012. While it was a great year for IPOs on paper, many VCs got doubly hit in reality. Not only did a lot of the big macro-plays not perform well -- hurting the market's appetite for others -- but M&A was down. The year ended with the fewest exits since 2009. Throughout the year, 403 deals raised some $37.2 billion, a 24 percent decrease from last year. The two largest were Liberty Dialysis and Cisco's acquisition of Meraki.