The current level of IPO activity is low to support the health of the venture capital industry in their respective countries says the 2011 Global Venture Capital Survey by Deloitte and the Venture Capital Associations of India, Brazil, Canada, China, France, Germany, Israel, US and the UK.
In India,more than 57% of the venture capitalists surveyed,stated that current IPO activity levels in India is low whereas, 38% considered that the activity levels are adequate.
In contrast, more than 80% of the global venture capitalists surveyed stated that the current IPO activity levels in their home countries are too low.
The survey, conducted annually, revelas that venture capitalists believe high returns generated by IPOs are critical in providing superior returns to limited partners and growth capital to developing portfolio companies.
“Clearly the industry continues to feel the ripple effects of the global economic downturn -- most notably in the form of limited exit opportunities,” said Mark Jensen, partner, Deloitte & Touche LLP and United States national managing partner for venture capital services.
“However, with signs of improvement in the economy and easing of the liquidity crisis, the tide may be turning. Innovation continues to be an important driver in our economic health and a strong exit marketplace is critical to the venture capital ecosystem driving much of that innovation," he added.
Venture capitalists in the United States, China, Brazil, India and France found it most important to have an active IPO market in their home countries, followed closely by the United Kingdom, Canada, Germany, and Israel.
In India, where the venture capital and entrepreneurial community continues to evolve, 81% of India venture capitalists deemed the India IPO market a critical element of the India venture capital industry. In contrast to the global trend of 49%, only 33% of India venture capitalists said that IPO markets in other geographies were essential to the success of the India venture capital industry.
90% of India respondents selected Nasdaq as one of the three most promising stock exchanges for venture-backed IPOs; 57% selected the National Stock Exchange of India and 48% cited the Bombay Stock Exchange.
Majority of the venture capitalists around the world still look to the US exchanges to provide a healthy and vibrant market,the survey stated.
“PE funds looking to sell in 2010 were able to choose from among several healthy exit-route options, including sales to strategic buyers and through a growing secondary sale market. Public market sales were—and will continue to be—the most important exit option, chiefly because the IPO market is expected to be buoyant despite a short-term correction,” said Mahendra Swarup, president of the India Private Equity and Venture Capital Association (IVCA).
The slowdown in IPO activity is attributed to a lack of several key drivers necessary for a vibrant capital markets system.
According to survey respondents the most important factors are a strong investor appetite for equity in public companies (83%), the need for a stable economic environment (52%), and the need for more adequate stock analyst coverage (32%). In India, venture capitalists also cited the need for Companies that appeal to general public and mainstream media (38%) and a competitive investment banking community for IPOs (29%).
