There’s no arguing that the recent IPO of A123 and the huge raise by Twitter are good news for market starved for good news. At least someone had a great exit, if you can call the A123 IPO an exit. And Twitter, is such an extraordinary story, if they can’t raise money on great valuations, who can? Activity like this is great after a long period in which there has been so little activity.

Having said that, the question remains if this presages a better environment for less extraordinary stories. Fred Wilson makes a good point in his blog to the effect that a financing is just a financing and not really a successful corporate event. As far as I can tell, A123 needs to be public because of the massive amounts of capital they will need to address their market opportunity. In this respect it looks like a biotech company. But the valuations are great, and it is hard to deny that investors are willing to take big risks.

The bad market returns of 2008 (even though the market has bounced back, it is still way below where it was before the fall) probably reflect in large part a reaction to an acute crisis in the financial markets as opposed to chronic long term issues. If this is true, then it should bounce back when the acute pain is over. But, it is hard to tell if long term trends have not been disguised by the presence of acute problems. I suspect that we will find out over the course of the next 12 or 18 months. If a "normal" exit market does not return in that time frame, we will need to be looking past the crisis for what the issues around capital formation are.

How will we know? We will know if solid companies (substantial companies that address real economic needs) but are not Twitter or A123 have good exits with investment justifying returns in this period in numbers that look more like 2007 than 2009.