With IPOs at lowest level since 1977, firms run out of options

— -- First Wind has big plans, and they involve getting listed on the Nasdaq Stock Market.

On July 31, the developer and operator of wind farms filed to sell stock to the public on Nasdaq and raise $450 million to pay off current investors and help finance future wind power projects.

The problem is that the market for IPOs, or initial public offerings of stock, has virtually shut down. First Wind hasn't announced any plans to cancel its offering, and declined to comment. But so far this year, 86 IPOs have been canceled, and there were only six new stock listings from venture-backed companies, the lowest since 1977.

"This is unprecedented," says Mark Heesen, president of the National Venture Capital Association, an industry organization.

In total, 43 IPOs have been priced so far this year, down 84% from 272 last year, says Renaissance Capital. It is also the lowest number since 1977, when 35 IPOs were offered, says University of Florida professor Jay Ritter.

The frozen IPO market has a cascading effect that could prove costly in a recession, where jobs are fast evaporating. A major avenue for private equity and venture capital funds to cash out has disappeared. That has forced the firms to hold companies in their portfolio longer than they would like, leading to a logjam of funding. It will affect both start-ups and companies in their latter stages that need cash to remain in business, leading to fears of a rise in bankruptcies of those that need a lot of capital to function.

Trouble cashing out

"Not only can't we harvest liquidity from IPOs and return money to our partners, but we then don't have enough money to commit to new ventures," says Trevor Loy of Flywheel Ventures in Santa Fe. "The bird that should be ready to fly off the nest stays there taking up more of our resources."

Consider Venrock, the venture capital firm backed by the Rockefeller family, which has had a hand in the early stage funding of companies such as Apple and Intel. Back in 1998, the firm invested $2 million in an upstart data-networking company named Anda Networks.