Find the latest episode of "The Uncertain Hour" here. Listen

Start-ups are slowing down

Mitchell Hartman Oct 1, 2008

Start-ups are slowing down

Mitchell Hartman Oct 1, 2008


Renita Jablonski: We’ve been hearing a lot about how banks and other lenders are squeamish about loaning money because they’re worried they wont get it back. One consequence: we’re not seeing as many start-ups go public. During the dot-com boom, IPOs seemed like a dime a dozen. A new study today shows those days are long gone. Mitchell Hartman reports from the Marketplace Entrepreneurship Desk at Oregon Public Broadcasting.

Mitchell Hartman: Today’s report from the National Venture Capital Association isn’t pretty. In the third quarter, there was precisely one VC-backed initial public offering. In the second quarter, there were none. That hasn’t happened for 30 years.

Mark Heesen is the association’s president:

Mark Heesen: Thus far, we have six venture-backed IPOs for the year. Normally we should have at least 75 at this point. So six is something that we have simply have never seen before.

An IPO is one of the ways that venture capitalists cash out on their investments. The fewer IPOs, the less willing VCs may be to invest in start-ups at an early stage.

Heesen says launching a company that you’ve nurtured onto the stock market to stand on its own,has always been considered a home run in the VC game — and not just because it’s a money-maker.

Heesen: You have to look at what companies do when they go public. They become important corporate citizens. You know, I look at Dell and I think, “What would Austin be today without Dell? What would have happened if Google or eBay had been bought instead of gone public?”

But with IPOs drying up, selling out to a bigger player is often the way to go. Intel might gobble up a hot software start-up. Merck could buy a company with a promising drug in clinical trials.

Bob Ward runs Capybara Ventures in Portland:

Bob Ward: Everybody’s looking for a leg up on competition. Large tech really relies on the small players, on small, fast movers, innovators, to provide the next generation.

And VCs have continued to funnel cash into hot fields like biotech, the Internet, and clean technology.

Mike Hoffman hopes some of that money will flow his way. His startup, Powermand, develops tools to improve energy efficiency.

Mike Hoffman: And it just so happens we’re in one of those markets that really matters — the sustainability area. So we kind of think that if we can get past this hump of actually having revenue, that we will be a very attractive venture target.

Until the VCs agree, though, his company will just have to last a little longer on the founders’ own money, and funds from friends and family, usually the first investors to risk their shirts in any start-up.

I’m Mitchell Hartman for Marketplace.

Marketplace is on a mission.

We believe Main Street matters as much as Wall Street, economic news is made relevant and real through human stories, and a touch of humor helps enliven topics you might typically find…well, dull.

Through the signature style that only Marketplace can deliver, we’re on a mission to raise the economic intelligence of the country—but we don’t do it alone. We count on listeners and readers like you to keep this public service free and accessible to all. Will you become a partner in our mission today?

Your donation is critical to the future of public service journalism. Support our work today – for as little as $5 – and help us keep making people smarter.