Facebook's botched IPO continues scaring away investors

— -- Companies looking to sell shares to the public for the first time are still afraid to show their faces to investors.

Facebook's disastrous initial public offering, still down 18% from its mid-May IPO price, has scared investors away from taking a chance on young companies looking for cash to grow and expand. The IPO market's deep freeze has been lasting, even while the broader market attempts to regain its footing.

Facebook has "created a drag effect for the rest of the industry and the other companies looking to get out of the gate," says Lee Simmons, analyst at Dun & Bradstreet. Fears about the European debt crisis and the U.S. economy have hampered all U.S. stocks during the quarter and, in turn, hurt the IPO market, says Richard Peterson of S&P Capital IQ.

The pall Facebook has put on the IPO market is starting to take on real significance, seen by a:

•Near standstill of deal volume after Facebook. Leading up to the Facebook IPO, April was the busiest fourth month of the year in a decade. That all ended in May as Facebook crashed below its IPO price. After Facebook, it took 39 days, the eighth-longest stretch since 2000, for any company to price an IPO. All told, the number of IPOs in the second quarter dropped 33% from the same period in 2011, says Renaissance Capital. Just 11 IPOs backed by venture capitalists were done in the second quarter, down 50% from the same period of 2011, says Thomson Reuters.

•Collapse in the money raised by companies. On its face, the fact that companies raised $22.7 billion in the quarter didn't look so bad, as it's an increase of 84% from the same period last year. But factor out how much of that $22.7 billion was raised by Facebook, and the data show that proceeds raised actually fell by nearly 50%.

•IPOs put on sale to move. To coax rattled investors back into the IPO market, companies and their bankers resorted to heavy discounting. In the second quarter, 45% of IPOs priced below their IPO prices. That's the most price-cutting since the third quarter of 2010.

Still, there are glimmers of hope. Companies with smaller IPOs, with median values of $86 million, outperformed the biggest deals. Four IPOs successfully went off in the last week of June, all of which are trading above their offering prices, says Francis Gaskins of IPOdesktop.com. One of the IPOs, software company ServiceNow, is up more than 40% from its June 28 debut.

"Greed is going to bring investors back," he says. "Facebook will fade into history."