The IPO Market goes through cycles: booms, busts and corrections.  The IPO market is sometimes characterized as a window that is open or shut.  In my experience, a number of factors can impact the IPO market, including market volatility (measured by VIX), valuations, supply and demand, overall stock market trend, investor sentiment and sector trends.

There's a good article posted yesterday from USA Today "IPO Market is Casualty of Stock Market Pullback" that discusses some of these factors.  The article discusses some recent IPOs and their pricing and post-IPO performance.  One factor the article discusses is the first day pop, and indicates that the first-day pop for 2014 YTD and 2013 was 17% and that IPOs that started trading yesterday had an average return of 8.7%.  Most IPOs are priced with a 15% discount as incentive to IPO buyers to buy the offering.  Because everyone knows that this discount is built in, most people expect a surge in stock price once the offering begins trading.  While an average return of 8.7% isn't stellar, it's still not too shabby.

Link:
http://www.usatoday.com/story/money/markets/2014/04/17/ipo-market-cools/7830837/

In my last post just a few days ago, I indicated that I did not feel that venture capital in general was in a bubble, but that the situation should be monitored closely because "if venture capital fund raising levels spike up, then more money will lead to higher entry valuations and exits, which could easily lead us into a bubble."  I watch a number of metrics to see if there's a bubble, among them venture capital fund raising levels, investment levels, health of the public markets, exit levels and valuations (both entry and exit).  I believe that venture capital fund raising can be a leading indicator of the future health of the venture industry.  Before the bubble, VCs would tell me that the venture industry was a $20 billion a year industry - this being money invested into companies.  My sense today is that the industry has expanded to encompass more strategies, but that a basic tenet continues to be that too much money is bad for the venture industry.

Yesterday, Thomson Reuters and the National Venture Capital Association released the first quarter fundraising totals.  In the release, they indicate that 58 funds raised $8.9 billion in the quarter.  If this trend continues, then venture capital funds could raise nearly $40 billion in 2014, a very large number.  What is more troubling to me is that with the recent growth of corporate venture capital groups, angel investors, incubators and crowdfunding, there will be much more than $40 billion invested in deals.  This comes in a time when startups need less capital than ever to get started.

In my view, the news that venture capital funds raised $9 billion in the first quarter is concerning.  While I still don't think we are in a bubble today, this news suggests that a bubble could be coming in the future.

Thomson Reuters / NVCA release: 
http://thomsonreuters.com/press-releases/042014/venture-capital-funds-strongest-fundraising-quarter-since-2007

My prior post: 
http://www.allenlatta.com/1/post/2014/04/is-venture-capital-in-a-bubble.html

Is Venture Capital in a Bubble?  This is a question that I see in the press a lot recently, with most prognosticators taking the view that No, Venture Capital is not in a bubble.  Take, for instance, today's posting on Business Insider  "Venture Capital Funding Is Nowhere Near The Levels We Saw During The Dot-Com Bubble."  This articles summarizes recent Deutsche Bank research that concludes that there is no evidence of a technology bubble.  The article discusses that the total amount being invested in venture capital today is no where near the levels of the great technology bubble of 1999-2000, aka the Dot-Com Bubble.

My view is a little more nuanced, and is based on anecdotal evidence and conversations I've had with VCs and investors in venture capital funds.  I'm of the view that in general, we are not in a bubble (as compared to the Dot-Com Bubble), but we are in an elevated state of valuations in certain sectors.  We've recently seen some impressive acquisitions (Whatsapp, Oculus VR, etc.) at sky-high valuations, which suggest these sectors may have bubble-like characteristics.  I hear from VCs that initial investment valuations are very high in certain sectors, which makes investing difficult, but that given the high valuations now is a good time to be exiting investments.  The encouraging thing about this for me, who was active during the Dot-Com Bubble, is that there is a recognition now that valuations are high, versus the excuses I heard in the Dot-Com bubble about paradigm shifts etc. that were used to justify ever-increasing entry valuations.

So I don't think we are in a bubble overall today, but that we are in a period of elevated valuations and certain sectors have bubble-like characteristics.  This situation does bear close monitoring, as if venture capital fund raising levels spike up, then more money will lead to higher entry valuations and exits, which could easily lead us into a bubble.

Business Insider article: http://www.businessinsider.com/historical-venture-capital-funding-2014-4