3Q a ‘mixed bag’ for VCs

SAN FRANCISCO – The third quarter was a mixed bag for venture capitalists nationwide as money raised through initial public offerings hit the highest level in two years, but mergers and acquisitions of venture-backed companies continued to be few and far between, according to industry tracker Dow Jones VentureSource.
Overall, venture-backed liquidity is down 49 percent from $5.32 billion in the third quarter 2008 to $2.70 billion in the most recent quarter.
“While we’re not seeing 2007’s double-digit totals, the liquidity market for U.S. venture-backed companies is showing signs of a significant thaw,” Jessica Canning, director of global research for Dow Jones VentureSource said. “The trickle of venture-backed IPOs over the past two quarters appears to be growing into a steady stream, which is a welcome sign of recovery for investors.”
Local statistics were not immediately available.
According to VentureSource, M&As raised $2.25 billion in the third quarter through the sale of 71 companies, down 56 percent from the $5.16 billion raised in the same period last year.
The $22 million median amount paid for a venture-backed company in the most recent quarter is a 52 percent drop from the $46 million median paid during the same period in 2008.
“While it appears that the market is still holding back despite lower valuations, an upswing in M&A activity is on the horizon,” said Canning. “We will see an influx of more than $1 billion if Amazon.com’s purchase of Zappos and CA’s purchase of NetQoS close as planned in the fourth quarter.”
In the third quarter, companies raised a median of $16.50 million in venture capital before achieving liquidity through a merger or acquisition.
This is 21 percent less than the $20.85 million median seen during the same period last year. In addition, it took a median of 6.13 years, 23 percent more time than the five-year median in the third quarter 2008, for a venture-backed company to reach liquidity via a merger or acquisition.
For deeper analysis, download the complete report from Dow Jones VentureSource at www.fis.dowjones.com.