Strong equity market performance has encouraged VC-backed companies to return to equity markets through IPOs. Take a look at this presentation to learn more about venture capital backed IPOs, capital market performance of US, China and Europe. Know more about visit http://aranca.com

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VC-backed IPOs on the Rise
Venture Capital-backed IPOs make a come back
Prior to 2008, capital markets were considered among the most popular routes for venture capital (VC) exits. However, the global financial crisis limited the available exit opportunities, leaving venture capital funds to rely on options such as stake sale to other VC/ private equity firms or management buyouts. In the recent times, strong equity market performance has encouraged VC- backed companies to return to equity markets through initial public offerings (IPO) as a viable exit alternative. In 2Q 2014, while the VC-backed M&A market deals declined 12.6% Q-o-Q to 97 VC-backed M&A deals from 111 deals in the previous quarter, VC-backed IPOs activity increased 45% Q-o-Q during the same period and raised USD4.9bn in capital. The improved activity can also be attributed to the improved global economy, with rebound in consumer confidence, increase in business spending and supportive actions by central banks.
In 2013, VC-backed IPO activity exhibited the strongest growth since 2007. Almost 128 companies went public during the year raising a total of USD23.0bn, with the US and China continuing to dominate as the most active markets. This momentum continued in 2014, with 152 VC-backed IPOs raising nearly USD30.6bn as of July 2014.
Global VC-backed IPOs**
Source: Thomson One; Note **Excludes figures from East Asia; *Includes figures till July 2014

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US – Among the most active IPO markets in the VC space
The US has been one of the most active markets for VC-backed IPOs owing to stability in equity markets and sustained investor confidence. Equity markets in the US are witnessing strong momentum, with the S&P 500 index rising about 22% and FTSE Nasdaq 500 index advancing about 31% Y-o-Y as at the end of June 2014. Also, the Jumpstart Our Business Startups (JOBS) Act, signed into a law in April 2012, made it easier for companies to access the capital markets. The measures under the act, including confidential filings and reduced disclosure provisions, have eased the process of going public for US companies.
Performance of US Capital Markets
Source: Bloomberg, Note: Rebased to 100
The first half of 2014 witnessed PE- and VC-backed IPOs contributing 64% to the total US IPOs by volume and 81% by capital raised. Total VC-backed IPOs stood at 38 in 1Q 2014, followed by 25 in 2Q 2014. The top three VC-backed IPOs in the US during 2Q 2014 were from the technology and healthcare sectors.
US VC-backed IPOs:
Source: Dow Jones Venture Source US Capital report 2Q 2014
The outlook for the rest of 2014 continues to remain positive, backed by low volatility in equity markets, strong investor confidence, and the success of Alibaba’s IPO listing. This is expected to pave the way for a buoyed equity market and improved investor sentiment which is likely to result in higher IPO activity in 4Q 2014.

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China – Witnessing high demand for VC-backed IPOs
In late 2012, IPO activity in China came to a stop, with the China Securities Regulatory Commission halting the approval of IPOs; this resulted in a sharp slowdown in the venture capital activity in the country. However, China lifted the ban after 12 months in late 2013, thus paving the way for several companies to go public in 2014. The first quarter of 2014 saw 27 VC- backed companies going public, marking the highest number in a quarter since 3Q 2011; a total capital of USD2.1bn was raised through IPOs during the quarter, up 26% Q-o-Q.
In 2Q 2014, although only 11 VC-backed companies went public in China, lower than in 1Q 2014, total capital raised was considerably higher by 34% at USD2.8bn. Moreover, when compared on Y-o-Y basis, number of listings was significantly better than only two completed in 2Q 2013. The largest IPO in 2Q 2014 was by JD.com Inc., which raised USD1.3bn, representing 48% of the total amount raised through VC-backed IPOs in China during the quarter. With the China Securities Regulatory Commission looking at easing restrictions on IPOs in the future, the country is making way for more offerings in 2014 and beyond.
China VC-backed IPOs:
Source: Dow Jones Venture Source China Capital report 2Q 2014
European markets are opening up for VC-backed IPOs
In Europe, the IPO markets continued to recover since the global 2008-09 economic crisis. The European Central Bank (ECB) has helped support the European markets by increasing liquidity through interest rate cuts and additional bond purchase programs. After a prolonged slowdown, capital markets across Europe are showing some signs of recovery, with the DAX, FTSE, and CAC gaining 37%, 16%, and 21%, respectively, over June 2011–14 following a sustained decline in previous years.
Performance of European Capital Markets

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Source: Thomson One
Europe witnessed eight IPOs in 1Q 2014, which was the highest number of VC-backed IPOs in a quarter since 2Q 2010. The second quarter recorded strong growth with 19 IPOs, reflecting the highest number of VC-backed IPOs in a quarter since 4Q 2006.The first seven months of 2014 witnessed a significant jump in amount raised from VC-backed IPOs, the highest in the past six years – USD3.7bn through 31 IPOs. Some of the notable offerings during the year include UK- based Just Eat PLC raising USD597.4mn in April 2014 and Circassia Pharmaceuticals PLC raising about USD333.5mn in March 2014.
Europe VC-backed IPOs
Source: Thomson One
Conclusion
The improving global economic outlook and positive regulatory developments in US and China to create a more conducive capital markets are among the major factors contributing to the growth of VC-backed companies taking IPO exit route. Also, the positive momentum in the equity markets post the 2008 financial crisis has encouraged the VC-backed companies to tap IPO as a viable exit option against acquisitions and buyout routes. Amid these contributing factors, capital markets globally are likely to witness a robust pipeline of IPOs by VC-backed companies.
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