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IPO Market Red Hot, Bravely Overcoming Existential Crisis

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Jeremy Stoppelman, Yelp co-founder and CEO, rings the opening bell at the New York Stock Exchange on the day of his company's IPO, Friday, March 2, 2012.
Jeremy Stoppelman, Yelp co-founder and CEO, rings the opening bell at the New York Stock Exchange on the day of his company's IPO, Friday, March 2, 2012.

The U.S. IPO market is in such a state of horrifying crisis that it just had what's arguably its best quarter in years.

The total number of U.S. initial public offerings jumped 50 percent in the first quarter from a year ago, outpacing the rest of the world, while venture capital-backed IPOs in the U.S. had their best first quarter in five years, according to new reports from market watchers.

"It's time to throw another shovelful of dirt on the notion of an 'IPO crisis' for emerging companies," Fortune's Dan Primack wrote on Friday.

The idea of an IPO crisis was part of the justification for the JOBS Act that passed Congress last week. Oppressive regulations, the supporters moaned, were standing in the way of bringing the next wave of LinkedIns and Groupons to the stock market. The JOBS Act was designed in part to remedy that.

The trouble is that the JOBS Act, in the process of clearing away the regulatory underbrush, also threw out some key investor protections. The Wall Street Journal dug one of those up today, pointing out that under the new law investors would have had to wait until after the IPO to find out about the tussle between the Securities and Exchange Commission and Groupon (which went public last year) over Groupon Inc.'s accounting.

And now we find evidence that the IPO crisis has been perhaps a big false alarm, just as Primack has long suggested.

Nineteen venture-backed IPOs hit the market in the first quarter, raising $1.5 billion, Reuters reported on Monday. Primack last week reported slightly bigger numbers -- 20 VC-backed IPOs, raising $1.6 billion.

More broadly, the broader U.S. IPO market saw 36 new companies go public in the quarter, up 50 percent from a year ago, The Wall Street Journal reported this weekend, citing data tracker Dealogic.

Things only seem to be heating up. The last week in March was the busiest single week for U.S. IPOs since 2007, the WSJ reported separately, including organic food maker Annie's Inc., shares of which gained a decidedly non-crisis-like 89 percent on their first day of trading.

The first quarter's deals were all on the small side, but that will change with Facebook's $5 billion IPO due soon, probably in May.

There's no doubt that regulatory requirements have kept some companies from going public, and the JOBS Act seems likely to set some of those IPOs free. What's debatable is whether this amounts to the end of a "crisis," as the business community has been complaining for many years.

One much simpler explanation for the recent lack of IPOs could be the actual financial crisis, along with the stock-market crash and deep recession that accompanied it, which sent many potential IPOs into hiding. Now that the economy and financial markets are years into recovery, more deals are starting to pop up.

Update: Chris O'Brien of the San Jose Mercury News's Silicon Beat blog agrees, as does PwC's IPO Watch, in its own very detailed breakdown of the quarter for IPOs:

The overall markets returned to a period of decreased volatility in the first quarter - lower volatility can lead to increased investor confidence about the stability of the relative valuations assigned to new issuers, and helps promote an environment of increased IPO investment.

O'Brien points out that three of the IPOs that came to market in the first quarter were for relatively tiny companies -- the very companies that were supposed to be in dire need of the JOBS Act in order to go public. Not so much, it turns out:

It seems even more clear that claims of an IPO crisis were vastly overstated. And unfortunately, a Congress that simply wanted to do something, anything, to make it look like they were doing something to create jobs went gleefully along for the ride.