Thursday, July 03, 2008

Venture Wrap: No IPOs? Luxury!

You'll pardon us if we don't run shrieking down the streets after the National Venture Capital Association issued its recent mayday about the state of venture capital-backed IPOs.

Yes, the fact that no VC-backed companies went public in the second quarter isn't good, and we were interested in learning that such a thing hasn't happened since 1978

But we’ve got longer memories.

A decade ago, the vast majority of venture capitalists renounced biotechnology and medical device investing, opting instead to focus on the Internet and telecommunications.

Many of the dearly departed even suggested that no venture capitalist could make money investing in biotechnology and medical device companies, both which required a bit more time and attention the dot-com foolishness of the age.

Life sciences companies couldn't even think about going public then. All seemed lost until IPO investors started spreading their dollars around to an equally speculative industry, genomics.

The point is times were tough then, and they're tough now. And although the past quarter was historically bad, it's still just a quarter. Isn't the venture capital business all about long-term vision?

The NVCA is doing its job, using the single quarter to lobby for changes in Sarbanes-Oxley, which supposedly is making going public too expensive. We agree with those who don’t totally buy the argument.

Instead, we give much more weight to the other reasons presented by the NVCA.

This cost, coupled with a decreased market appetite for smaller cap companies, a lack of analyst coverage, and a lower investor appetite for technology stocks, has raised the bar considerably for venture-backed companies hoping to go public. The median age of a venture-backed company from founding date to IPO hit a 27-year high in 2007 at 8.6 years.

To us, this sounds less like a crisis and more like a new reality that venture capitalists are learning to manage, at least on the life sciences side of the house. It doesn't do much good to bemoan the "skittishness" of investors.

Instead, the best venture capitalists will be finding innovative ways to grow their companies--or buy some cheap shares in later-stage companies--so they're ready to go when the next bubble forms.


It's hard to see how Johnson & Johnson's Ethicon Inc. won't follow through on the potential deal to sell its professional wound care business to private equity firm One Equity Partners. After all, it was Ethicon that put the business on the market, picking the One Equity bid as the best. The terms of the deal haven't been disclosed, but with annual revenues of $270 million it's difficult to see how this won't be $1 billion-plus deal.

We reported in IN VIVO the magazine about private equity firms circling the medical device industry earlier this year. So we'll be watching to see what other deals come along. Meanwhile, if One Equity sees this as a roll up opportunity this will be good news for those hearty VCs investing in wound care companies, another issue we recently covered in START-UP.


Because no one ever gets tired of hearing about Boston Sports Teams (How about them Tampa Devil Rays), the Boston Globe reported recently that Celtics owners--and health care VCs--Wyc Grousbeck and Mark Wan might be raising a venture fund aimed at sports business opportunities.


Speaking of...

... blue chip health care firms that rose from the ashes of the VC-migration from life sciences, VentureWire Lifescience reported that Versant Ventures is closing in on $500 million for its fourth fund.

... the ongoing IPO crisis, Foundation Medical Partners may be benefiting from the successful IPO of CardioNet Inc. We asked one of the firm's partners about a new fund and he issued an immediate no comment, which suggests fund-raising is afoot. CardioNet is now trading at $28, btw, $10 over its offering price from its March IPO.

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