Tech start-ups struggling

Since Facebook’s flop this spring, the tech IPO market has collapsed.

By June, not a single company had ventured to go public, compared to 19 IPOs posted by June of last year. Instead, as many as 14 offerings were withdrawn or delayed, says Dealogic.

These included Tria Beauty, maker of laser hair removal devices, and computer gaming parts developer Corsair Components. Both cited poor market conditions.

But while the global economy does make for a poor economic backdrop, the tech market is becoming increasingly harder to infiltrate.

David Sacks, former chief operating officer of PayPal, recently told Financial Times, “Silicon Valley as we know it may be coming to an end.”

The sector has more than recuperated from its major bust in 2000, says FT, but Sacks claims it’s becoming harder for start-ups to thrive and beat competition.

Read: U.S. IPO market shows sign of hope and Canadian IPO Market struggles

“To create a successful tech company, you have to: develop an idea that has escaped the attention of the major internet companies, which are better run than ever before; prove you’re worth funding, since the typical seed and series A investment costs can run as high as $5 million; and protect yourself from being found out and acquired in the early stages,” he wrote on his Facebook profile.

So, while many expected Facebook’s debut to unleash a wave of investment in technology start-ups, it has instead paused the efforts of tech-savvy entrepreneurs and those supplying their funding.

“There were a lot of venture capitalists and entrepreneurs waiting for Facebook to go public,” says Sam Hamadeh, CEO of PrivCo, a research firm following privately-held companies.

The company has joined the ranks of other Internet companies currently trading below their IPO prices; the list includes Zynga and Groupon.

On the bright side, it’s been given the green light to go ahead with its acquisition of Instagram. Techcrunch.com says the Federal Trade Commission unanimously closed its investigation after more than four months, and that the deal is worth $747 million.

Facebook stands to gain its product and design teams, as well as its 80-million-plus followers.

To say the least, the company’s high-publicized IPO brought attention to the tech sector. And Steve Harrick, partner at Institutional Venture Partners, says, “There’s still a lot of demand for great technology companies and we’re not shrinking away.”

By going public, companies can raise capital, provide liquidity to existing shareholders and raising the company’s profile. And a smaller company wouldn’t face the same overvaluation and scrutiny problems Facebook investors have had to weather.

Analysts also say its failed IPO taught investors and companies to avoid buying into the bubble mentality. The soft debut and continual decline of the company’s stocks shows success is never a sure thing.

Also, as FT suggests, some bubbles slowly deflate rather than burst; if the tech sector does fall again after its approximate eight-year boom, it will likely be caused by a lack of innovative and investible companies.

Read: Tech sector shedding an albatross? (2010), for an analysis of the sector after it crashed