Having not seen a venture-backed company complete an initial public offering in nearly eight months, the US venture capital industry is suffering through its worst liquidity drought on
Having not seen a venture-backed company complete an initial public offering in nearly eight months, the US venture capital industry is suffering through its worst liquidity drought on record, according to statistics from Dow Jones VentureSource.
During the first quarter of 2009, venture capitalists managed to generate just USD3.2bn in liquidity through mergers or acquisitions of 68 portfolio companies, a 65 per cent drop from the USD9.1bn in liquidity generated in the first quarter of 2008 and the lowest quarterly total since 2003.
‘The most disturbing part about these new liquidity figures is that we’ve already reached the lows seen after the dot-com bust and we may not be at the bottom yet,’ says Jessica Canning, global research director for VentureSource. ‘The IPO market is totally closed and there’s just no clear indication right now that it will revive any time in the next quarter or two, even with 43 companies currently in registration. It’s a tough time to be a venture capitalist – and likely even tougher to be an investor in a venture fund.’
According to VentureSource, liquidity generated through the sale of venture-backed companies fell 64 per cent from USD8.8bn in the first quarter of 2008 to USD3.2bn in the first quarter of this year. The 68 M&As in the quarter are a far cry from the 104 completed in the first quarter last year and the lowest number of M&A transactions in a quarter since 1999.
‘Emerging companies in the information technology (IT) space are really suffering. In the first quarter of 2009, only 43 of these companies were sold – the fewest we’ve seen in 10 years,’ says Canning. ‘This is due to the fact that many public technology companies are focused on conserving capital and the few that are buying venture-backed companies are doing so for lower prices.’
The data shows that the overall median amount paid for a VC-backed company in the first quarter of the year was just shy of USD22.1m – a 63 per cent drop from the nearly USD60m median paid during the same period in 2008.
The largest M&A transaction in the first quarter was Medtronic’s USD700m acquisition of Irvine, California-based medical device-maker CoreValve. Medtronic was responsible for providing 30 per cent of all venture liquidity in the quarter, as it also bought Ablation Frontiers, a Carlsbad, California-based medical device company, for USD225m.
According to VentureSource, venture-backed companies took less time and money to achieve liquidity in the first quarter of 2009. Prior to achieving a merger or acquisition, the companies raised a median of USD15.5m in venture capital – 33 per cent less than the median USD23m raised by companies that exited during the same period last year. In addition, the median amount of time it took to reach liquidity was 4.7 years in the first quarter of 2009, nearly a third less time than the 6.8-year median seen in the first quarter of 2008.
