The National Venture Capital Association , the lobby group for venture capitalists, declared a state of emergency for venture-backed startups today and announced a four-pronged plan to revive their chances of going public .
NVCA 4-Pillar Plan to Restore Liquidity in the U.S. Venture Capital Industry
View more presentations from NVCA.
Large banks such as Goldman Sachs and Morgan Stanley have long dominated the process of taking companies public. They each typically demand a 40 percent cut of the multi-million dollar fee a startup must pay bankers in order to go public. (The banker fee is roughly 7 percent of an overall IPO — giving banks $7 million for an IPO worth $100 million). The big banks typically allow a 20 percent sliver of that fee to go to a smaller investment bank, even if that bank has done more work to win the business. VCs will no longer stand for that, Dixon Doll, the NVCA chairman (below left) told me in an interview this morning. Smaller banks need a decent share of proceeds because they’re the ones who take time to do research about small companies. Without these boutique banks, startups will go unnoticed and never get any love from IPO investors.
(...) But now, with the financial industry in the gutter, this threat by big banks to withhold support has lost credibility. “If the big banks say no,” says Doll, “you just don’t use them. They’re very hungry for business, so they’re very unlikely to say no.” He added that the NVCA will push VCs to work with founders to force the issue, encouraging them to vote to assign smaller banks to handle a larger share of the IPO “book-running” syndicate.
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