One VC's Take on IPOs -- They're Baa-ack...

By Carol Tice
Exclusively for BVR Times

I recently got the chance to talk with a guy who's among the most influential venture capitalists around, Jeffrey Bussgang at Flybridge Capital. The occasion was the release of his new book, Mastering the VC Game – A Venture Capital Insider Reveals How to Get from Start-up to IPO on Your Terms (Portfolio May 2010).

I was a little fascinated that he mentioned initial public offerings in his book title, since IPOs have been so few and far between lately – Renaissance Capital reports IPOs crashed from 273 offerings in 2007 to 43 in 2008 and 63 last year. Does Bussgang still think IPOs are the exit of choice in the VC world? Yes.

"The market has improved meaningfully," he says. It has – 37 IPOs have already gone in the first third of this year, so if we stay on that track we'll have more than 100 offerings this year. Still a far cry from the heyday, but a substantial recovery.

"I think what we saw in the past year or two was a bit of a blip," he says. He profiles two companies' IPOs in the book, the long road to IPO of Constant Contact (CTCT), and the short one of Sirtris Pharmaceuticals, where Bussgang says "they did everything right, it came together very fast, and they were able to go public on buzz and promise, which is rare now. Constant Contact was more typical – done on numbers, tangible results." (Sirtris has been bought up by GlaxoSmithKline since that time.)

Ultimately, most companies don't go public. Bussgang says of 2,000 companies that get VC funding each year, historically there are only 30 or 40 VC-backed exits in a typical year.

So why study companies that successfully make the IPO journey? "There are a lot of lessons you can derive from these experiences, even if you're not going for the IPO," he says. "It's all about the aspirational company-building process, and I'm trying to demystify that process."

Bussgang tells a couple of hilarious pitch stories in the book – one got the money, the other didn't. The winning entrepreneur made his pitch, and then calmly clipped his toenails while another member of his team picked up the ball. His confidence in delegating that authority won over the funders.

The other one arrived for his pitch with his dog in tow. Sitting in a glass-enclosed conference room, the dog got excited and suddenly charged at something in the hallway, hit the glass wall and was knocked out cold. The entrepreneur was so upset that he couldn't continue the pitch, picked up his dog and left.

"He never followed up with me either," Bussgang says, laughing. "I never heard from him again."

Moral of the story: leave the dog (and other distractions) home.

One more cautionary tale about VC funding – Bussgang says it usually presages a loss of control of the top slot by the time an exit rolls around.

"It's very rare for the founding entrepreneur to be in charge from beginning to IPO," he says, "but not rare for them to still be around, as a CTO or CMO."