A dramatic reversal occurred in the capital markets, beginning around 2000, and its causes and implications appear to have been widely misunderstood. From 1980 to 2000, an average of 310 operating companies did initial public offerings (IPOs) each year, but from 2001 to 2011, this number fell by over two-thirds to only 99 operating companies per year.1 This decline cannot be explained by macro-economic conditions as Gross Domestic Product more than doubled over this period.
Moreover, this decline has been even more precipitous in the case of smaller IPOs (hereinafter defined to mean IPOs of companies with pre-issuance annual sales of less than $50 million2). This category of smaller IPOs crashed from an annual average of 166 IPOs per year during 1980 to 2000 to only 29 per year in 2000 to 2011a drop of 83 percent.3 Indeed, the end may not yet be in sight, as in each of 2008 and 2009, there were only four such smaller IPOs, with the number rising modestly to 21 and 22 in 2010 and 2011.4
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