SAN FRANCISCO -- Seventeen companies funded by venture capitalists made their US stock market debuts during the final three months of 2003, contributing to the busiest quarter for initial public offerings in three years, according to figures released yesterday.
The venture-backed IPOs completed in the fourth quarter represented the most since the final quarter of 2000, when 21 start-ups seeded by venture capitalists ripened into public companies, based on data compiled by Thomson Venture Economics for the National Venture Capital Association.
The venture-backed IPOs represented a chunk of the 46 companies that went public in the fourth quarter. The volume of IPOs hit its highest level since the third quarter of 2000, when 113 companies first sold their shares in the US stock market.
Although more venture-backed companies sold their IPOs during the fourth quarter of 2003, they didn't command premium prices.
Venture-backed IPOs raised $1.05 billion, or an average of $61.7 million per deal completed in the fourth quarter. Since 2000, venture-backed IPOs have raised an average of $85 million per deal, according to the Venture Economics data.
Still, the upturn in successful IPOs heralds a renewed investor interest in young companies after several years of disdain triggered by the dot-com bust.
Fueled by bullish analyst reports, hundreds of unprofitable tech start-ups launched IPOs during a late 1990s frenzy that saddled investors with devastating losses after many of those businesses collapsed.
The backlash stung venture capitalists particularly hard because the industry depends on the stock market to liquidate its investments. That option had almost dried up by mid-2002. From July 2002 through June 2003, just eight venture-backed companies launched IPOs, according to Venture Economics.
With IPOs out of favor, many venture capital firms suffered the worst losses in their history and curtailed their investments in start-ups.
As the stock market surged last year to its best returns since 1999, investors became more willing take a chance on IPOs -- a high-risk asset class that dangles the prospect of quick windfalls.
The greater risk tolerance is helping venture capitalists usher their start-ups back to the stock market. After just one venture-backed company went public in the first quarter of 2003, 28 more completed IPOs during the final nine months of the year.
It's an encouraging trend, but probably not enough to spur a significant rise in venture capital investment this year, said Mark Heeson, president of the National Venture Capital Association.
The industry trade group expects venture capitalists to invest about $16 billion in 2004, about the same amount as 2003. Venture capital investment peaked at $106 billion in 2000, when 215 venture-backed IPOs were completed.
"The IPO market has come a long way since this time last year, but it still has plenty of room to grow," Heeson said.
In another heartening development, investors who bought venture-backed IPOs last year fared well.
Twenty-four of the 29 venture-backed companies that went public in 2003 ended the year with market values above their IPO price. San Diego-based Accredited Lenders Inc. turned in the best performance among venture-backed IPOs: shares nearly quadrupled from their IPO price of $8.