It looks like, right now, things are running about as smoothly as they could be for tech financings. Wall Street’s IPO window has been open all year. Now the mergers and acquisition market is warming up nicely as well. Ironic, really: the sub-prime debt crisis has done nothing at all to hamper the risky end of the stock investment spectrum.
According to the National Venture Capital Association, M&A activity involving venture-backed companies in the US has just rebounded to its highest level since the beginning of 2001. Valuations are also going up: for transactions where the price was disclosed, the average deal size in the latest quarter reached $226m, the highest since late 2000.
The IPO market, for its part, took a bit of a pause over the summer, but Wall Street’s attention was kept firmly on the tech sector’s charms thanks to the eye-popping debut of VMWare (not included in the NVCA figures.) We mused a while ago about the apparent "underpricing" of VMWare’s IPO, but that turns out to have been an understatement: the virtualisation software company now has a stock market value of $34bn, or $23bn more than the bankers valued it at when they took it public six weeks or so ago. It isn’t hard to find the reasons why VMWare has taken off: a small float of shares, a super-hot company, and a stock market that is hungry for quality growth companies. A perfect storm like this rarely lasts.
With all the exits now open, expect venture capital to keep flowing strongly. This is about as good as it gets for tech financings - just as long as the party doesn’t start to get completely out of hand.
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