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Tech IPOs: Can the Visa Offering Revive a Near-Dead Market?

March 25, 2008

OK, it looks like I was mostly wrong about tech IPOs this year. In my post on Jan. 8, I predicted that “it will be another year of growth for tech offerings, but the growth won’t be on the order of last year’s 46% surge. We’ll be fortunate to see 10% to 20% more tech IPOs in 2008.”

This year, there have been only 12 IPOs (and three tech IPOs), a precipitous 70% drop from 37 pricings for the same period in 2007, according to America’s Growth Capital. For now, it looks like 2008 will see a big drop in tech IPOs compared to the previous year.

So what went wrong? One word: RECESSION. At least I was smart enough to flag this possibility in my post when I said: “There is one caveat to my prediction: If the economy veers into recession all bets are off.”

Over the last three months, the economy has continued to deteriorate more than I expected. I don’t think anyone saw the collapse of a Wall Street investment bank when the subprime mess emerged last summer. That’s a damn big wingtip that just dropped. You have to wonder what other surprises are lurking in the shadows. Fact is, the shadow economy of derivatives, collateralized debt obligations and other bizarre new types of securities is far more pervasive and risky than anyone realized. Now, we’re dealing with the aftermath of this deluge of financial toxins.

Of course, I am still hopeful that the economy will strengthen in the second half of the year–and that could lift the number of IPOs. But it’s hard to be bullish on new issues right now with all this uncertainty.

Another factor keeping the IPO windows shut: The media after-market performance for all 2007 and 2008 IPOs has turned negative to -3%, while tech IPOS are down 10% in the same period, with almost two thirds below their offering price, according to America’s Growth Capital.

So will the super-successful VISA offering revive the IPO market? Probably not. For now, it seems like more of an exceptional case than a harbinger of good times to come.

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