It's tempting to celebrate every successful high-tech initial public offering these days as another sign that happy days are here again. But one banker who spoke Tuesday at the AlwaysOn Summit sponsored by Stanford University said that that view is misplaced.

"The only reason it feels like the IPO market is back is because we went through Death Valley between 2001 and 2003," said Paul Deninger, vice chairman of Jefferies & Co. "It's my contention that venture capitalists should be deeply concerned."

Deninger said that the 55 to 60 tech companies slated to go public this year would put 2007 on par with the IPO market of 1991, the worst offering market of the 1990s. He also cited statistics suggesting that exit options for young tech companies are far more limited than has been reported. The total number of M&A transactions in the tech sector has been flat for six straight years, Deninger said, a fact that is often masked by a growing number of what he called "front page, Wall Street Journal deals." Throw in the fact that many of these megadeals were private equity transactions and that debt markets are now on the decline, and there's further reason for concern.

So what's a VC looking for good exits to do? Deninger advised that they consider public offerings even for companies of limited value that don't stand a chance of being the next Google Inc. Some 80% of all companies traded on Nasdaq have market capitalizations of less than $500 million, and even Cisco Systems Inc. was worth a mere $250 million when it first went public.

Even former Credit Suisse First Boston banker Frank Quattrone, who led 65 tech IPOs between 1990 and 1998, tended to work with small companies. All those Quattrone IPOs raised a median of $37 million, Deninger said, calling on VCs to "restore that small-cap IPO market." —Andrea Orr

See June 12 story from TheDeal.com
See August 2006 column from TheDeal magazine

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