The economy is facing down a recession and the web is still rolling on. One question that keeps cropping up is what type of exit strategy should you expect. Herb Tabin of VOIS was kind enough to take a look at the public offerings market. Here is what he had to say.

When Classmates.com filed to go public in 2007, it would have been difficult to predict how poor the initial public market offering market for web startups would become. With MySpace becoming the most successful internet startup in history and Facebook being hailed as the next Google with a potential IPO down the pike, the timing seemed perfect.

Then things quickly went downhill.

The IPO Landscape

Just a few months later the seemingly hot Goldman Sachs, Classmates IPO was quietly withdrawn. The company wasn’t alone. During the past six months at least a thirty companies have withdrawn their IPO’s with another five being postponed, due to soft market conditions. So far just 24 IPO’s have priced this year down 66% from last year according to IPOhome.com.

Worse than that Dow Jones VentureSource reported that only six venture-backed companies in the entire country completed IPOs during the first quarter, while only 80 M&A transactions occurred. That’s compared to105 M&A deals and 13 IPOs for the same period last year. With these statistics many VC’s are quietly postponing later rounds of financing or skipping them altogether. These reports suggest clouds on the horizon for the venture industry, which has invested massive amounts of money over the past two years in Web 2.0.

It could be the perfect storm for venture capital firms, a slumping initial public offering market coupled with an inability amongst corporate buyers, courtesy of the credit crunch, to purchase new companies. To really get an idea of the magnitude of the problem you needn’t look far into the past. The IPO total has not hit this level since second quarter of 2003 with only 56 deals being completed in the first quarter, the lowest quarterly total on record in the past decade.

The challenging market is leaving many Venture capitalists looking for companies with “alternative” exit strategies. One of these companies succeeding in this difficult market with an alternative strategy is a company How To Split an Atom reported on in February Vois. Unlike most startups VOIS was funded originally by its founders and taken public in its early development.

When we first spoke to investment bankers and venture capital people alike most were unhappy with our decision to grow our business within a publicly-traded company. The bankers in general felt it was premature. All that changed in January 2008, when the markets began to decline. The phone started ringing and the first question became ‘am I correct you trade on an exchange and your stock symbol is V O I S?’ Shortly thereafter in the worst January in the history of the stock market not only did we raise our first million dollars of outside capital but we did it in less than 10 days.

While many startups still plan to brave the market, they face difficult challenges. The IPO market is unlikely to rebound soon and the credit crisis has derailed merger and acquisition but in typical finance fashion when confronted with a problem Wall Street finds a way.

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