The third quarter proved to be a mixed bag for US venture capitalists as capital raised via initial public offerings hit the highest level since 2007, but mergers and acquisitions of venture-backed companies totalled 71, consistent with pre-boom numbers of 1999, according to Dow Jones VentureSource.
Overall, venture-backed liquidity is down 49 per cent from USD5.32bn in the third quarter of 2008 to USD2.70bn in the most recent quarter.
“While we’re not seeing 2007’s double-digit totals, the liquidity market for US venture-backed companies is showing signs of a significant thaw,” says Jessica Canning, director of global research for Dow Jones VentureSource. “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.”
The USD451.25m venture-backed companies generated through two IPOs in the third quarter is largely thanks to A123 Systems garnering USD371.25m in a late September IPO.
According to VentureSource, M&As raised USD2.25bn in the third quarter of 2009 through the sale of 71 companies, down 56 per cent from the USD5.16bn raised in the same period last year. The USD22m median amount paid for a venture-backed company in the most recent quarter is a 52 per cent drop from the USD46m 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,” says Canning. “We will see an influx of more than USD1bn 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 USD16.50m in venture capital before achieving liquidity through a merger or acquisition. This is 21 per cent less than the USD20.85m median seen during the same period last year. In addition, it took a median of 6.13 years, 23 per cent more time than the five-year median in the third quarter of 2008, for a venture-backed company to reach liquidity via a merger or acquisition.
The largest M&As of the quarter belonged to the tech industry with VMware purchasing SpringSource, a provider of enterprise Java infrastructure software, for USD362m and Intuit paying USD170m for PayCycle, a provider of online self-service payroll for small businesses.
In addition to the A123 Systems IPO, LogMeIn, a Woburn, Massachusetts-based provider of on-demand remote connectivity solutions for the enterprise, completed an USD80m public offering in July.
