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T.E. Raja Simhan

Chennai, Aug. 20 There were fewer private equity-backed (PE) initial public offerings (IPO) across sectors, but more funds were raised in the first half of this calendar year when compared with the corresponding period last year.

During the first half of 2008, there were six PE-backed companies that went public compared with nine during the corresponding period last year. Similarly, there was only one venture capital-backed (VC) IPO this year when compared with three last year, according to the data provided by Venture Intelligence, a part of the Chennai-based TSJ Media Pvt, which provides information and networking services to the private equity and venture capital ecosystem.

Mr Sudheer Kuppam, Managing Director, Intel Capital, when capital markets are in a ‘free fall correction, IPOs just do not happen.’ Despite fewer transactions, the overall amount is larger in first half of this year due to higher valuations that market permitted compared with corresponding period last year.

Whether it is PE or VC, capital markets and investor sentiment is the key for IPOs. Added to this is underlying fundamentals of the company and the industry to which it belongs. Most of the PE investments happen at a much later-stage compared to VCs, where the investments are made at mid-stage.

Hence the interest for PE-backed IPOs is much larger than that of VC-backed. Also, as the investments are made at a later-stage, the valuations are also higher for PE-backed IPOs compared to VC-backed, he said.

According to Mr Arun Natarajan, Founder and CEO, Venture Intelligence, last year public markets were more receptive to IPOs.

Another reason could be that there are not many VC funds left over from 2000 vintage, who could exit their investments via an IPO right now. PE investors take stakes in companies that are two-three years away from their IPOs. However, VCs invest in early stage companies and it might take a company five-seven years to go public.

Typically, PE exit in companies will be 3-5X (times the original investment) and it will be around 8-10X for a VC exit, he said.

More Stories on : IPOs | Venture Capital

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