By Christopher Zinsli for WSJ Vecnture Capital
The two years after a venture-backed company goes public can transform a venture capitalist, who normally couldn’t care less about short-term stock fluctuations, into an eager stock watcher.
The WSJ Pro Venture-Backed Post-IPO Index, which tracks the stock performance of VC-backed companies for that crucial period, provides an indication of when VCs can make the most on their investment.
Based on history and the current state of the index, they’ll be sitting tight for a while.
The index has gone through at least two major downturns in recent years. Amid the financial crisis, it lost 68% from a peak in 2007 until bottoming out in late 2008. It then took nearly two full years to recover. Following an eight-month drop in 2011 in which it shed 45%, the recovery took almost as long, 21 months.
A shorter, and more recent, dip occurred in 2014. In two months from February to April the index lost 32%. It took 10 months to recover.
We’re now in the middle of a new cycle of downturn and recovery. The index fell by 42% over 10 months starting last summer, and only since February has it started working its way back up.
For VCs needing to divest their shares, this is the question: When?
Let’s make the assumption–a big one–that things won’t turn south again anytime soon. In the two and a half months since February’s low point, the index has regained 17% of its value. That puts this recovery squarely in line with the past two major ones.
If history is any indication, VCs with public holdings should mark their calendars for New Year’s 2018.
First appeared at WSJ VC