The IPO market shows just how readily spooked investors could be in 2012. As the IPO specialists at Renaissance Capital noted in their year-end review, proceeds were at their highest level since 2007, before the financial crisis hit – but that was largely due to Facebook's outsize offering. And by the time bankers pinned a final valuation to the Facebook IPO, storm clouds already were gathering on the horizon.
Already-jittery investors seized on the botched deal – overpriced and bungled when the Nasdaq exchange couldn't cope with the initial flurry of orders – as a sign that they should dial down the amount of risk in their portfolios and shun companies making their public market debuts. As a result, the IPO market froze solid for about a month, and when it resumed activity proved spasmodic and readily derailed by news of everything from the ongoing debt crisis in Europe to the apparently futile negotiations to avoid the so-called "fiscal cliff."
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Indeed, all of the top-performing IPOs of 2012 were priced before Facebook arrived on the scene – and none of them were household names of the same kind as the social media giant. HomeStreet soared 115 percent over the course of 2012, after going public in February. GuideWire Software, one of the year's cluster of successful enterprise-software offerings favored by investors opting for proven business models over Facebook-style buzz, ended the year up 70 percent.
As of mid-December, according to data from Dealogic, the average 2012 IPO was up 14 percent, but that figure masks a large number of disappointments, as well as the fact that no single sector was clearly leading the way higher. Top performers, as tracked by Renaissance Capital, included technology, health care, financial and business services companies. And the final two months of the year turned out to be the second-slowest on record since financial crisis.
The picture this paints is one of uncertainty. The Facebook IPO may have been the biggest venture-backed deal of its kind ever, but if you exclude that, Renaissance Capital noted, VC-backed IPOs were down 16 percent in number and 43 percent by the amount of proceeds raised. That can't be encouraging for venture investors, even as the IPO pipeline continued to grow in the second half of the year. One (anonymous) startup CEO, asked by the National Venture Capital Association for his thought on the environment for the new year, responded succinctly: "More of the same. Difficult environment to raise private capital. Difficult IPO market. Very few companies will be started."