BioCentury
ARTICLE | Finance

Ebb & Flow

December 13, 2004 8:00 AM UTC

Venture firms are doing two things in this IPO window that they have done less frequently in the past: they are investing in the IPO and they are hanging onto their shares well after the expiration of the lockup period. A main reason for both phenomena is the relatively low pre-money valuations of companies going public. Thus, the venture crowd is viewing IPOs more as a financing event rather than a liquidity opportunity.

From the completion of a company's last private round to its pre-money IPO valuation, Chris Ehrlich of InterWest said the typical step-up this window is 1.5-2x. "Thus, to get the desired venture step-up of 3-5x, you have to hold on until there's a sufficient value-creating event," he said. ...