What is not a surprise is that this has been a tough year for venture capital backed companies attempting to go public.  Just look at the state of the credit markets and the public capital markets in general. We have firms dropping like flies, credit is being much more closely guarded, and investors are just generally reticent to take on any undue risk exposure. 

What is surprising is that the National Venture Capital Association and many VC’s (it seems) are shocked by this trend.  Wow … you mean to tell me that people no longer want to pay astronomical multiples for more or less unproven companies to go public in these markets?  You must be crazy, right? 

Come on, guys … if you think that this is an easy IPO market, then you’re so caught up in the false sense of value that your web start-up has that you’re totally missing the big picture.  It’s bad when every kid who builds a social networking site is genuinely shocked when he finds it will not be the next Facebook.  Or when developers of obscure products are wondering why VC’s are not beating down their doors to fund them.  Or when VC’s are wondering why Wall Street firms don’t want to travel to California to hear about the self-described “next Google.” 

But cheer up, folks.  The markets will turn and the good thing about private equity is that we can typically hold out from the public equity markets if it means preserving value.  It’s typically easier said than done, but we do have the advantage of being shielded by a great deal of the negative activity taking place in the public capital markets.

With that said, I think VC’s need to do a better job in general of being more cognizant of what is happening in the overall marketplace.  I think entrepreneurs can get so consumed with their world on Sandhill Road, doing nothing but drinking coffee in front of their computers, and they forget that the markets will ultimately drive whether or not their businesses make it beyond the incubator.  Sure, these firms have the benefit of being shielded from some of the day-to-day volatility, but ultimately they are going to have to face the markets.  The entire VC and start-up communities need to be more prepared in facing these scenarios, so things like the current state of the credit markets don’t chop all of the year’s venture backed IPO’s off at the knees.