By the Numbers: Venture-Backed IPOs in 2013

2013 was the strongest year for venture-backed initial public offerings (IPOs) in almost a decade: 82 deals (the most since 2007) generated aggregate proceeds of over $11.2 billion, an average offering amount of $137.2 million. At least one venture-backed company went public each month in 2013, and the pace of IPOs has accelerated in the first three months of 2014.

As the nation’s leading business law firm for entrepreneurs, emerging growth companies and venture capitalists (VCs), Gunderson Dettmer is frequently asked, “what’s market in an IPO?” We analyzed the 71 venture-backed companies incorporated in the United States that were involved in IPOs on U.S. stock exchanges during 2013, reviewing their IPO prospectuses and corporate governance documents. Our report, available here, outlines what we learned, “by the numbers,” in the following key areas:

• JOBS Act accommodations
• directors and independence
• board committees
• board policies
• stock plans
• key metrics and non-GAAP financial measures and
• defensive measures.

About the companies and the IPOs

Of the 71 venture-backed companies we reviewed:

• all but two were incorporated in Delaware
• 35% were listed on the Nasdaq Global Market, 30% on the New York Stock Exchange, 28% on the Nasdaq Global Select Market, and 7% on the Nasdaq Capital Market
• the average time from incorporation to IPO was over nine years
• the average time from initial registration statement submission to the SEC to pricing the IPO was five months
• approximately one-third of the companies have already completed follow-on offerings, frequently prior to the expiration of the 180 day IPO lock-up period

The following are some of the key findings we identified in the report.

JOBS Act accommodations

• Over 90% of venture-backed companies took advantage of the JOBS Act accommodation to submit a registration statement confidentially, spending on average nearly 3 months in confidential registration and filing registration statement publicly approximately one month before their roadshow.
• Nearly half of venture-backed companies still provide 3 years of audited financial statements, but over two-thirds provide 3 or less years of selected financial information.
• A significant majority of venture-backed companies provide limited executive compensation information.
• Despite the JOBS Act accommodation, a significant majority of venture-backed companies choose to be subject to new public company generally accepted accounting principles (GAAP).

Directors and independence; board committees

• A significant majority of venture-backed companies have substantially independent boards and board committees at the time of IPO.
• VCs frequently serve on board committees as independent directors, often despite stock ownership in excess of 10%.

Board policies

• A significant majority of venture-backed companies disclose the adoption of key board policies, including corporate governance guidelines, codes of business conduct and related party transaction policies, prior to the time of IPO.

Stock plans

• Nearly all venture-backed companies adopt a new equity compensation plan at the time of IPO, and nearly all of such plans include an “evergreen” provision.
• Nearly two-thirds of venture-backed companies adopt an employee stock purchase plan (ESPP) at the time of IPO, most of which include an “evergreen” provision.

Key metrics & non-GAAP financial measures

• Over a quarter of venture-backed companies disclose non-financial key metrics in their IPO prospectus, and nearly one-third disclose non-GAAP financial measures (most frequently adjusted EBITDA).

Defensive measures

• No venture-backed company adopted a stockholder rights plan, or “poison pill,” in connection with its IPO.
• Dual-class common stock structures are still relatively uncommon, with only 7% of companies adopting.
• Other defensive measures, such as classified boards and other protections inserted in the certificate of incorporation and bylaws, were liberally adopted.
• Nearly 75% of venture-backed companies adopted the newest form of defensive measure—an exclusive forum provision—in their governing documents.

For more information

For more information on the above survey findings or any related matters, please contact Richard C. Blake at [email protected]. To receive a print version of the report or ensure that you receive future editions of the report, email [email protected].