It’s bad news when there hasn’t been a VC backed company execute an IPO in such a long time, and it’s sad that the company that attempted to break the IPO drought, Rackspace, had such a poor reception. Rackspace was sold on Friday at $12.50 a share, and priced down about 20% that day. It traded up a bit today, but still has not been a particularly successful offering, and thus won’t provide the jumpstart to the IPO market like I had hoped. This really isn’t a big surprise, but still it’s disappointing. The slowdown in the IPO market is also trickling down into the venture market and may be slowing some company’s VC fundraising efforts.
I don’t have any economic interest in the company, I just think it’s unfortuante that we are in such a tough IPO market. The National Venture Capital Association (NVCA) released a publication a while ago on the IPO drought, and Rackspace’s public offering is not likely to do much to fix the problem. One of the biggest reason for the lack of IPOs cited in NVCA’s publication was skittish investors. Unfortunately that problem can also scoot down the cycle and translate into skittish venture investors…
Most venture investors seem to be confident that the IPO market will reopen, and if good companies are being built then they should survive any sort of capital markets slowdown. That being said, VCs are only human and it’s natural that investments may take a bit more mental effort to actually get done. If the entire market is scared then you shouldn’t be surprised that your average venture investor may be a bit infected with this same malaise.
How should you combat this if you’re a startup founder seeking funding? Preparation is key. You need to have your ducks in a row and be ready to impress. The more organized you seem the more likely you are to impart the impression that you’ve got what it takes to navigate your company through the challenging economic times. Secondly, you may need to prepare for a slightly longer fund raising cycle. It appears that good VC investments are still being done, but I’m willing to be they are taking a bit longer. Practically then you need to make sure your company is adequately financed to make it through a potentially extended fund raising cycle. Third, you may wish to hit groups VCs in a couple of cycles (i.e. pitch a few VCs, get feedback and pitch a few more). Take what you learn from the first group and apply it to your preparation for the second group that you pitch. If things are taking longer than expected with the first group of VCs you meet with then it is possible their cycles will drift into the second’s, meaning you haven’t really lost too much time by tranching your fund raising sales cycle.
As my dad used to day, “this too will pass.” Usually he was referring to the way I felt after losing a basketball game or after getting dumped by a girl, but hopefully it’s true in this case as well. Although, come to think of it, it never made me feel much better then and I don’t think it does much now either.
