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There doesn't seem to be a week that goes by without someone lamenting the sorry state of the venture capital market or our favorite exit ramp: the IPO market. Granted, the overall number of offerings in the past 7 to 8 years has been paltry. Notable individual exceptions are Google (2004), SynchronOSS Technologies (2006) and, more recently, Open Table and SolarWinds (both 2009). But let's face it: if yours is a venture-backed company, you have had higher odds of being struck by lightening than going public in this first decade of the 21st century.

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"Why" is the biggest question people ask. Is it too much regulation (Sarbanes-Oxley most notably)? Is it the investment banks? The famed four horsemen (Montgomery Securities; Robertson Stephens; Alex. Brown; and Hambrecht & Quist) rode off into the sunset, never to be seen again. Did too many people get burned by the IPO market in 1999/2000, never to return to buying IPOs? All of these factors must have some bearing on the vibrancy of the IPO market, but they are more about the "ease of getting public," not the underlying issue that is the real culprit of the dearth of IPOs: we just didn't have the numbers. The IPO swamp was drained in 1999/2000, and we had to start basically from scratch.

If we think of IPO success in a supply/demand context, we can break it down even more granularly:

• Supply = companies that can successfully complete an IPO,
• Demand = institutional and retail buyers,
• Intermediaries = the investment banks that underwrite the offering,
• Regulations = the rules that govern the whole process.

We have had significant "breakage" in all four categories. The regulations are much more onerous and expensive with Sarbanes Oxley and the rules that govern investment bankers who work with analysts. The market share-leading intermediaries for IPOs of the '80s and '90s are gone. The bulge-bracket banks are willing take a company public but have thrown in a $25 million per quarter run rate as the bare minimum (have they heard of emerging growth companies?).

Those on the demand side of the equation lost money on so many of the prior new issues that they have turned their collective backs on new IPOs. As a result, the demand side dried up these past few years and focused instead on the perceived "risk-free" returns of CDOs, exotic alternatives, and powerful hedging strategies, all of which took risk capital away from emerging growth companies.

The supply side, though, is where we have had the most problems. Any company that could go public in the bubble days did go public, regardless of merit. Companies that would have normally been an 2003-, 2004-, or 2005-vintage IPO class went public in that surreal period of 1999/2000 or went out of business because they lost all access to capital, whether public or private. Perhaps no one realized it or we didn't want to acknowledge it, but building long-term sustainable value takes time, and we have been in rebuilding mode for over 8 years.

The IPO market for the second decade of the 21st century will be driven by companies formed after the bubble (i.e. late 2000/2001 and later). Historically, a venture-backed technology startup has required an average of 5 to 7 years to complete an IPO, and more recently that timeline has extended to 7 to 8 years. Mathematically, we are just beginning to enter a period when, collectively, there should be enough companies in the pipeline that conceivably have even a chance of going public.

More intermediaries and buyers will most definitely enter the fray for IPOs if the demand side of the equation believes that good money is to be made with this supply wave of new innovative companies. These IPOs in the next few years will have revenue models tied to:

• The evolving social network economies of Facebook, Twitter, and WordPress,
• Enterprise customers using Amazon Web Services and cloud computing applications,
• Breakthrough clean technology processes.

None of those aforementioned companies or trends was present in any meaningful way during the last great period of public offerings.

So, stay tuned: it's bound to be a little bumpy along the way, and it will not go from 0 to 60 overnight (the pump has to be primed, as they say). But from our vantage point at the earliest stages of tech financing, some dynamite stuff is coming in the next decade to a public market near you.

Guest authors: Phil Black and Jon Callaghan, True Ventures.

The following is one in a series of guest posts we're running here on ReadWriteWeb. This one is by Reshma Sohoni, CEO of Seedcamp, the global organization dedicated to helping entrepreneurs grow successful businesses. Prior to her role at Seedcamp, she was an associate at 3i and Softbank's eVentures India, and Senior Manager in Commercial Strategy at Vodafone.

Having listened to pitches from over 140 startups from all over Europe, working with 14 of our companies during the past two years, and reviewing applications for our annual event in the next few weeks, I am struck by just how different the requirements of early-stage investment are (for both investor and entrepreneur) compared to those of venture capital or private equity.

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In my experience, early-stage startups rarely differentiate between sources of funding, with the possible exception of angel investors, with whom they often have ties. They simply work out a figure, create the business plan, and start pitching — paying little regard, at their own peril, to the type of investor they're bringing on.

Sure, investing in an early-stage company is, at the very least, about spotting opportunities, making the right investment, helping with introductions, and being a board member. But there's much more, and it is really about getting in the trenches.

Generally, investors get involved with their early-stage companies (if their relationship is good) by helping with product and business planning beyond the board (sometimes weekly), challenging the entrepreneur when they need it, experimenting and taking risks alongside them, and often acting as a cheerleader and sounding board. Although VCs and private equity investors do get involved from time to time in the "nuts and bolts" of the businesses they support, they are generally not expected to do so in the beginning.

One is not better than the other, but companies at different stages require different types of investors. And to have the best chance of success, both the investor and entrepreneur need to recognize exactly what kind of involvement is needed and then act accordingly.

The spirit of mentorship is thriving in the European entrepreneurial community: money can get you a lot, but putting a price on connections is impossible. Ask a successful entrepreneur about the people who helped him or her along the way: the list is almost guaranteed to include individuals who may not have invested money but who made important introductions, offered advice, or gave honest and timely feedback.

Several key points consistently emerge from the feedback I have heard over the past few years.

For Investors

Higher bar for higher-risk investments
Even though you like an idea and think it has the potential for great returns, the company has a much higher chance of failure if it is very early-stage. Many more things can simply go wrong at such an early stage. It's crucial that investors understand this level of risk and treat it differently than they would for a later-stage company, because mismanaging expectations of early-stage companies makes for an unstable foundation on which to build and grow.

Get your hands dirty
The entrepreneur will benefit from more than just your money. Success will come more easily if you like the idea, like the people behind it, and feel passionate about the market it is targeting. So, you'll have to work closely; and the closer you are, the better you'll be able to tell whether the investment will succeed or not.

Use different metrics
The proof points are different at the early stage, so you need to measure traction with shorter milestones and much more specific metrics than overall revenue and profitability.

For Entrepreneurs Seeking Investment

Try, fail, improve, try again
Whether it's your first startup, your first approach of a customer, your first strategy, or any intermediate steps, you will experience some failures and mistakes. The most important thing is to keep iterating and improving.

Pay-off from the relationship
While a healthy early-stage entrepreneur/investor relationship inevitably has a lot of interaction, preparing ahead of time for meetings and calls and setting clear goals for what you would like to get out of the interaction is critical. Make your investors help you and work for you. Just as they're assessing you, you should always have a clear sense of what they are doing for you. Again, this is even more critical at the early stage.

Pace and execution
Fast pace and execution are more critical at the early stage than any other. A good investor will be watching closely to see that you move fast and execute well. Not only is this good for your relationship with the investor, but it is even better for your business. Here in Europe, we need to quicken the pace by at least 50%.

The startup community in the UK and Europe is a force to be reckoned with, and the better we can foster successful investor/entrepreneur relationships, the more we will all succeed. Timing is also important, and we at Seedcamp are taking a very long-term approach to building successful early-stage businesses — looking at the next 15 to 20 years, rather than just 1 to 3 years. Rather than criticize, let's all put the building blocks in place to create a strong foundation for entrepreneurship and venture capital.

The following is one in a series of guest posts by venture capitalists that we're running here on ReadWriteWeb. This one is by Paul Jozefak, a VC based in Hamburg, Germany, who used to run SAP AG's European venture activities and is now a managing partner at Neuhaus Partners. The original post can be found on his blog.

I was thinking about what questions I would ask if I were raising venture capital. Funny thing is that I often think about what to ask entrepreneurs when deciding whether to invest in them. I've told entrepreneurs often enough that they should ask their VCs just as many questions. I have never really clarified, though, what they should ask. My bad. So, to be fair, here is what I would ask a VC if I was interviewing one for the highly coveted opportunity to invest in my business (note the satire).

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1. Who Is Responsible for Your Track Record?

The boring question would be, "What is your track record?" This doesn't address what you need to know, plus you'll get the most personal marketing B.S. Finding out who the VC's go-to people are is probably more important. How will he get you in the door of where you need to be pitching? Has he opened doors in the past that led to revenues, partnerships, mergers, acquisitions, exits? Does he just pay lip-service to everything he can do for you, or does he actually execute? No one works alone in the VC business. VCs should have a strong network of people on whom they can not only call but depend. I answer this question as honestly as possible when asked. I know when I can and -- more importantly -- can't help you. I'll tell you openly when I can't add value to your venture.

2. How Involved in My Company Do You Plan to Be?

This is a double-edged sword. The answer will range between, "I'll just be a board member" to "I'll call you every day to see how things are going." Be afraid of both! Having someone who only comes to board meetings but is otherwise completely unreachable really sucks. But having someone on your back every day takes up too much of your time. If you need your VC by your side every day, you're not good enough to run the company anyway.

3. How Much Vacation Do You Take Each Year?

No, seriously, ask this. Some hardcore VCs out there work night and day. You'll also find race horses out to pasture, VCs who were once superstars but are now just "doing it for fun." If they're accessible, nothing beats the latter. However, those ones do tend to take month-long "trips," during which time they have no interest in business, phone calls, interruptions, or anything of the sort. Ask them. It may mean the difference between getting the advice you need in a crunch and having to figure it out on your own once again.

4. Will I Have Access to Your Partners?

I have really smart guys working with me. I often ask for their help, advice, and insight. Why shouldn't you? Ask the partner you are dealing with if you will be able to access his or her partners in times of need, and ask how they might fill in the knowledge gaps so that your business can succeed.

5. What Is the Process for Follow-On Investment, and How Much Capital Will You Reserve for This?

People are usually so focused on getting the first round that they forget the rest. Ask about the process for follow-on investment. Will a whole new due diligence process be required? Will the VC have to prepare a whole new investment proposal? Who will determine whether to inject additional capital? How long would that take? Most important, will there be enough capital for a follow-on investment? Sure, you're probably saying in your pitch that this round will take you to an exit or the break-even point. But why not plan for rainy days? Ask what would happen... just in case!

6. What Stage of the Fund's Life Cycle Are You in?

Remember, as VCs, we invest other people's money (as well as our own). Every fund has a life cycle (which I won't get into here, but you can find out more here). The companies we look for near the end of an investment fund's life cycle tend to be different than the ones we look for at the beginning of a cycle. Sure, exceptions can be made, and we make them often, but asking doesn't hurt.

I'm sure there are more and better questions, but these are the ones that sprang to mind as I thought about the process of raising VC money. Feel free to add your own in the comments if I've missed any.

The following is one in a series of guest posts by venture capitalists that we're running here on ReadWriteWeb. This one is by Paul Jozefak, a VC based in Hamburg, Germany, who used to run SAP AG's European venture activities and is now a managing partner at Neuhaus Partners. The original post can be found on his blog.

I was thinking about what questions I would ask if I were raising venture capital. Funny thing is that I often think about what to ask entrepreneurs when deciding whether to invest in them. I've told entrepreneurs often enough that they should ask their VCs just as many questions. I have never really clarified, though, what they should ask. My bad. So, to be fair, here is what I would ask a VC if I was interviewing one for the highly coveted opportunity to invest in my business (note the satire).

Sponsor

1. Who Is Responsible for Your Track Record?

The boring question would be, "What is your track record?" This doesn't address what you need to know, plus you'll get the most personal marketing B.S. Finding out who the VC's go-to people are is probably more important. How will he get you in the door of where you need to be pitching? Has he opened doors in the past that led to revenues, partnerships, mergers, acquisitions, exits? Does he just pay lip-service to everything he can do for you, or does he actually execute? No one works alone in the VC business. VCs should have a strong network of people on whom they can not only call but depend. I answer this question as honestly as possible when asked. I know when I can and -- more importantly -- can't help you. I'll tell you openly when I can't add value to your venture.

2. How Involved in My Company Do You Plan to Be?

This is a double-edged sword. The answer will range between, "I'll just be a board member" to "I'll call you every day to see how things are going." Be afraid of both! Having someone who only comes to board meetings but is otherwise completely unreachable really sucks. But having someone on your back every day takes up too much of your time. If you need your VC by your side every day, you're not good enough to run the company anyway.

3. How Much Vacation Do You Take Each Year?

No, seriously, ask this. Some hardcore VCs out there work night and day. You'll also find race horses out to pasture, VCs who were once superstars but are now just "doing it for fun." If they're accessible, nothing beats the latter. However, those ones do tend to take month-long "trips," during which time they have no interest in business, phone calls, interruptions, or anything of the sort. Ask them. It may mean the difference between getting the advice you need in a crunch and having to figure it out on your own once again.

4. Will I Have Access to Your Partners?

I have really smart guys working with me. I often ask for their help, advice, and insight. Why shouldn't you? Ask the partner you are dealing with if you will be able to access his or her partners in times of need, and ask how they might fill in the knowledge gaps so that your business can succeed.

5. What Is the Process for Follow-On Investment, and How Much Capital Will You Reserve for This?

People are usually so focused on getting the first round that they forget the rest. Ask about the process for follow-on investment. Will a whole new due diligence process be required? Will the VC have to prepare a whole new investment proposal? Who will determine whether to inject additional capital? How long would that take? Most important, will there be enough capital for a follow-on investment? Sure, you're probably saying in your pitch that this round will take you to an exit or the break-even point. But why not plan for rainy days? Ask what would happen... just in case!

6. What Stage of the Fund's Life Cycle Are You in?

Remember, as VCs, we invest other people's money (as well as our own). Every fund has a life cycle (which I won't get into here, but you can find out more here). The companies we look for near the end of an investment fund's life cycle tend to be different than the ones we look for at the beginning of a cycle. Sure, exceptions can be made, and we make them often, but asking doesn't hurt.

I'm sure there are more and better questions, but these are the ones that sprang to mind as I thought about the process of raising VC money. Feel free to add your own in the comments if I've missed any.