Are IPOs a Thing of The Past?

There�s definitely a lot of IPO buzz this week, especially with Groupon getting readyfor its offering. Based on its latest filing, the company could be worth more than $11 billion.

But Zynga also expects to hit the market within a month or so. And of course, investors are eagerly awaiting the Facebook IPO.

So, things are looking much better, right? Maybe not, according to a recent study titled �Where Have All the IPOs Gone?� from University of Florida professor Jay Ritter.

Based on his research, the average number of IPOs during 2001-2009 came to 103. However, during the 20 years prior to that, there were 311 IPOs.

In fact, Ritter believes the lower volume will continue for some time, which is certainly bad news for investment banks like Goldman Sachs (NYSE:GS) and Morgan Stanley (NYSE:MS).

Why is Ritter taking such a dim view on things? First of all, the Sarbanes-Oxley law imposes severe regulations on public companies. At the same time, the structure of Wall Street has been transformed. For example, the size of many funds has increased over the years, and if a money manager has billions to invest, it�s tough to get much impact when buying shares in small companies.

But Ritter has another interesting reason: It has gotten tougher for smaller companies to compete. He points out that giants like Apple (Nasdaq:AAPL) have tremendous scale to design and roll out products across the world. How can a small operator do something like that?

Thus, it should be no surprise that Ritter�s research shows that the biggest decline for IPOs is for those companies with less than $50 million in annual revenue. For companies of that size, the average number of IPO deals went from 165 a year during 1980 to 2000 to just 30 a year from 2000 to 2009.

This trend is actually good for investors. For the most part, the IPO market is a much better filter for quality companies. Consider that this year we�ve seen top firms like HomeAway (Nasdaq:AWAY) and LinkedIn (NYSE:LNKD) go public. They have dominant positions in their markets as well as proven business models.

And more importantly, there have not been the kind of wacky IPOs of the 1990s � a la Pets.com � that have made any traction. In light of the huge losses during that era, it is probably a good thing the markets are much more restrained nowadays.

Tom Taulli runs the InvestorPlace blog �IPO Playbook,� a site dedicated to the hottest news and rumors about initial public offerings. He is also the author of �All About Short Selling� and �All About Commodities.� Follow him on Twitter @ttaulli. As of this writing, he did not own a positioning any of the stocks named here.