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Cash dries up for venture-backed startups

Posted: 06 Jan 2009 ?? ?Print Version ?Bookmark and Share

Keywords:startup? venture public offering? IPO?

Established companies are tightening their purse strings when it comes to acquiring venture-based startups and the door to public offerings is essentially closed, according to a market watcher.

Venture capital startups seeking to be acquired or to go public just closed their worst year since 2003, according to statistics from Dow Jones VentureSource. U.S. venture-backed companies generated $24.1 billion through public offerings and mergers and acquisitions in 2008, the lowest totals since VentureSource began tracking the industry in 1992.

The 2008 totals were down 58 percent from the $57.6 billion in 2007, the market watcher said. Just seven companies completed public offerings in 2008 raising $551 million down from the $6.8 billion generated through the public listings of 76 companies in 2007

"With virtually no IPOs and corporations only making choice acquisitions, the liquidity markets have essentially been cut off for venture investors," said Jessica Canning, global research director for VentureSource. "Additionally, the ever-increasing amount of time it takes for a company to go public or get acquired is stretching out the lifecycle of venture funds and therefore returns to venture firms and their limited partners," she said in a press statement.

Lowest number
Only 325 venture-backed companies merged or were acquired in 2008, the lowest number since 1999, and down 29 percent from the seven-year peak of 457 companies sold in 2007. The 65 venture-backed companies sold for a total of $3.9 billion in Q4 08 marked the lowest quarterly transaction number since 1999, far below the 123 companies sold for $16.4 billion in Q4 07.

"Overall, the median amount paid for a VC-backed company in 2008 was roughly $45 millionhalf of the median $90 million paid in 2007," said Canning.

Dell's $1.4 billion acquisition of data storage company Equalogic was the largest deal of the year. It was announced in Q4 07 but closed in January 2008.

As for public offerings, "there are currently 18 venture-backed companies in IPO registration but nearly all of these companies filed before the stock market fell in October and will likely remain in a holding pattern or withdraw their offerings until the market recovers," said Canning

VentureSource said there were no public offerings completed by venture-backed companies in Q2 and Q4 08. The median amount of time it took a startup to go public or be acquired hit a record 8.3 years in 08, more than a year longer than reported in 2007 when it was 7.2 years, the market watcher reported.

- EE Times

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