Term Sheet

The latest on private equity, M&A, deals and movements — from Wall Street to Silicon Valley

Forget the four horsemen

April 5, 2013: 4:19 PM ET

horsemenVCs need to stop blaming their IPO woes on the decade-old  loss of four banks. Instead, they should look in the mirror.

FORTUNE -- Ask most venture capitalists about the recent dearth of tech IPOs, and they're liable to talk despairingly about the "Four Horsemen" -- a quartet of boutique investment banks that underwrite a large number of such offerings both before and during the dotcom boom.

None of the four -- Alex.Brown, Hambrecht & Quist Group, Robertson Stephens & Co. and Montgomery Securities -- really exist any more, acquired and effectively drowned by larger organizations.

"No one has really stepped up to replace the Four Horsemen and we're all suffering for it," a veteran venture capitalist said to me this week. "It's a fundamental problem that persists through both bull markets and bear markets."

Unfortunately, it's also a delusion.

The problem today isn't that there aren't enough banks willing to take smaller tech companies public. It's that venture capitalists are too narrowly focused on getting three premier names on board, sometimes at the exclusion (or at least delay) of other possibilities.

Morgan Stanley (MS), J.P. Morgan (JPM), Goldman Sachs (GS) or wait. Not because those three banks know more potential investors or provide better coverage, but because they give VCs bragging rights at cocktail parties.

RELATED: Stop sweating the tech IPO 'drought'

There have been 38 IPOs for VC-backed tech companies since the beginning of 2012, according to Thomson Reuters. And one of those three banks was "left lead" on 29 of them (76%).

The remaining nine offerings were split among seven different left leads, proving that there are plenty of alternate underwriters that can get the job done. In fact, one could argue that "the others" could be better hires, given that they'd have fewer distractions.

"There are as many, if not more, banks willing and able to take VC-backed tech companies public today than there were back in 1997 or 1998," says a source who focuses on public listings. "But where you used to have all the bulge-brackets and the boutiques, now all VCs want is a small subset of the bulge bracket. If the Four Horsemen returned, VCs would probably still hold out for Goldman or the Morgans to take their companies public."

Sign up for my daily email newsletter on deals and deal-makers: GetTermSheet.com

Posted in: ,
Join the Conversation
About This Author
Dan Primack
Dan Primack
Senior Editor, Fortune

Dan Primack joined Fortune.com in September 2010 to cover deals and dealmakers, from Wall Street to Sand Hill Road. Previously, Dan was an editor-at-large with Thomson Reuters, where he launched both peHUB.com and the peHUB Wire email service. In a past journalistic life, Dan ran a community paper in Roxbury, Massachusetts. He currently lives just outside of Boston.

Email a Tip | @danprimack | RSS
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by WordPress.com VIP.