Where Are Companies Trapped In The IPO Pipeline Turning For Additional Financing?

Where Are Companies Trapped In The IPO Pipeline Turning For Additional Financing? - 1/1/2009

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HEADLINES \| SETTLEMENTS AND DISMISSALS \| COURT FILINGS LINKS TO OTHER NEWS \| NEWS ARCHIVE	HEADLINES ARCHIVED SETTLEMENTS AND DISMISSALS ARCHIVED

HEADLINE NEWS:

Where Are Companies Trapped In The IPO Pipeline Turning For Additional Financing?
Avital Louria Hahn

CFO Magazine. January 1, 2009
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EXCERPT: […] With the financial markets traumatized and the IPO drought expected to continue, many of these companies are now courting private capital, but that too has become difficult as valuations have fallen and investors have become ever more selective. "The path to liquidity is cloudy right now," says Michael Bauer, managing director and global head of capital markets at Jefferies & Co. "The market has become more volatile and a number of players backed away and stopped participating." Venture-backed, late-stage companies that abandon IPOs are left to chase a smaller pool of investors, bankers say. Crossover funds from Fidelity, SAC Capital, and others that invested in mature start-ups when cash was plentiful have scaled back. That leaves late-stage venture-capital and private-equity firms as the most likely sources of funding for companies whose dream of going public remains deferred. Companies looking to invest strategically are also loosening their purse strings, but very cautiously. While private-equity and venture investors have a lot of cash to invest, deals won't be easy to come by. They have raised the bar — and the cost of capital — for companies they finance. Companies need to be cash-flow positive or have a competitive edge or a promising new product. A firm that is burning cash without a highly attractive and attainable return will be either rejected or offered harsh terms. "Terms are tighter, but deals are getting done," says Peter Falvey, managing director of Revolution Partners, a boutique investment bank in Boston. Companies should expect investors to make very conservative assumptions in order to get the internal rate of return required for their funds. Investors are building into their calculations discounts that may be as deep as 30 to 50 percent compared with early 2008.

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