Special Report on Venture Capital: Flotations flooding through the pipeline: The jump in the stock market following the November Budget has left survivors of recent years feeling pretty pleased, says Jason Nisse

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TO SAY the last 18 months have been a good time for venture capitalists would be close to serious understatement.

The strength of the London stock market has opened the floodgate for an unprecedented number of flotations. According to figures from the British Venture Capital Association, between July 1992 and June 1993 36 venture-backed companies have been floated on the stock market, raising nearly pounds 3bn. This means that - excluding investment trusts and reverse takeovers - 48 per cent of all new stock market listings were backed by venture capital.

Those who have been able to survive the last three or four years - and do deals in the hard times - are feeling pretty pleased. 'All our flotions have been at prices that give us exceptionally good returns,' says Paul Brooks, managing director of Prudential Venture Managers. 'The last bumper year we had for realisations was 1990, when we had six trade sales and one float. Last year we have had six flotations and just one trade sale - the purchase of Swift by Christian Salvesen.'

Many other venture capitalists have been able to take advantage of the market - Charterhouse Development Capital raised pounds 224m in floating the sausage casings group Devro and PhilDrew Ventures registered a raging success with Sir Phillip Harris' Carpetright - and there is a pipeline of quite sizeable flotations coming up. But there is concern that the market may start slowing.

The jump in the stock market following the Budget allayed much of the fears venture capitalist had that the market was going to fall away. 'I'm much more confident today than I was before the Budget,' says Ian Hawkins of PhilDrew Ventures.

The stock market tends to like former buy-outs. As Mr Hawkins points out: 'If companies succeed in a recession with a high level of debt it means that they are well disciplined. Venture capital backed companies tend to outperform the market after flotation.'

Competition is starting to manifest itself in increased gearing levels. For a while the debt-to-equity ratios have been at one-to-one, but it is now starting to edge up to around one-and-a-half to one. However most venture capitalists are still expremely cautious about debt levels, preferring security to pushing up the returns on an investment though overgearing.

There is also an increasing sophistication about the use of swaps and other financial market instruments to hold down debt levels. Most of the deals being struck at the moment are taking advantage of historically low interest rates to lock in interest payments at today's levels, so limiting the risk.

Memories in the financial world are short - but there are enough old hands in the market to remember the problems of the end of the 1980s. After all, if anyone wants to remember how things

can go wrong, they only have to look across at the continuing probelms of the thrice restructured Isosceles.