The Falloff in Tech IPOs (And What It Tells Us)

Where have all the VCs gone? IPOs of technology and telecommunications companies accounted for a measly $1 in every $10 raised in the first half of this year, according to Thomson Financial, setting the sector up for its weakest showing since 2002. A poster child for the malaise is Vonage Holdings--shares of the Internet telephony pioneer have fallen by more than half since its May 24 stock sale, which was overpriced and poorly handled.

Is there more going on here than one company's pratfall and a backlash against dot-com financing? Maybe so. The IPO surges of the 1980s and late 1990s were fueled by companies addressing big, underserved markets--for computing power, software, networking technology and Internet services. "There are fewer of those now," says venture capitalist Gene Frantz, at Texas Pacific Group.

Take heart, young investor. The absence of blockbuster IPOs isn't necessarily a bad thing. First, some of what Wall Street offers up to the public is invariably just silly. "If someone came up with an Internet-enabled fork, I suspect they would have had a billion-dollar valuation," says Stuart Madnick, an IT professor at MIT. Innovation is still happening, says Madnick--it's just happening at big companies. Although dozens of start-ups tried their hands at digital music, he notes, Apple Computer left its "nimble" competitors in the dust. On the enterprise side too, innovation is increasingly coming from big companies. Keep an eye on major IT players as well as garage-side innovators. --Rob Herzberg, [email protected]