NCPA - National Center for Policy Analysis


December 30, 2008

The stock market has traditionally been a great place for private companies with a small group of owners to a get a return on their initial investment.  Through an initial public offering (IPO), the public gets to participate in the growth of a company, which in turn gets access to a broader base for capital.  However, the IPO market has virtually shut down, affecting start-up companies and those in their latter stages that need cash to remain in business.

  • This year, 86 IPOs have been canceled, and there were only six new stock listings from venture-backed companies, the lowest since 1977.
  • In total, 43 IPOs have been offered this year, down 84 percent from 272 least year (also the lowest number since 1977).

With so many IPOs shelved, the lack of financing could jeopardize the future of innovation in the U.S and will also lead to fewer new jobs.  According to a 2007 IHS Global Insight study, venture-backed companies accounted for 10.4 million jobs and $2.3 trillion in revenue for the U.S. in 2006.

In the last couple of years with gas prices hitting record levels, solar, wind and biofuel energy companies have been hot investments, with $20.6 billion flowing in from private equity and venture capital funds for 2008.  On July 1, First Wind, a developer and operator of wind farms, filed to sell stock to the public on NASDAQ to raise $450 million to pay off current investors and help finance future wind power projects.  Since energy prices have plunged, however, new investment in this sector will be selective. 

"If we are unable to obtain additional debt or equity financing, we may have to curtail our development activities or be forced to sell assets," says First Wind.

Source: Pallavi Gogoi, "With IPOs at Lowest Level since 1977, Companies Run Out of Options," USA Today, December 24, 2008.

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