Despite End of IPO Drought, U.S. Venture-Backed Liquidity Market Hovers at 6-Year Low

Dow Jones VentureSource: VC-Backed IPOs, M&As Net $2.8 Billion in 2nd Quarter, Down 57%; Median M&A Price Falls to $22 Million, Lowest Since 2003

SAN FRANCISCO (RPRN) 7/02/2009--Even with the end of a nine-month drought in initial public offerings (IPOs), the second quarter was one of the worst for venture capital-backed liquidity since the doldrums of early 2003, according to leading industry tracker Dow Jones VentureSource. Overall venture-backed liquidity fell 57% from $6.48 billion in the second quarter of 2008 to $2.8 billion in the most recent quarter.

Venture capitalists generated $2.57 billion through mergers or acquisitions (M&As) of 67 portfolio companies in the second quarter, a 60% decline from the $6.48 billion raised via 89 M&As in the same quarter in 2008 and the lowest quarterly M&A deal total since 1999. Three venture-backed companies made public-market debuts in late May and June, raising a total of $232 million. In the prior 13 months, only one other VC-backed company completed an IPO, in August 2008.

"The IPO window appears to be opening as the first three public offerings since the third quarter of 2008 closed in the second quarter," said Jessica Canning, Director of Global Research for Dow Jones VentureSource. "The success of these transactions is clearly a testament to the strength of these companies and their ability to close deals in current market conditions."

M&As: Even with Lower Prices, Still No Rush to Buy

According to VentureSource, the overall median amount paid for a venture-backed company in the second quarter of 2009 was just shy of $22 million--a 46% drop from the nearly $41 million median paid during the same period in 2008.

"As valuations continue to fall, the market appears to be correcting the possibly inflated figures posted in 2007," said Ms. Canning.

Less Money, Time Needed to Achieve Liquidity

The data showed that, prior to achieving liquidity via a merger or acquisition in the second quarter, companies raised a median of $16.3 million in venture capital, 30% less than the $23.4-million median seen during the same period last year. In addition, the median amount of time it took to reach liquidity via M&A was 4.5 years, 25% less time than the 6-year median in the second quarter of 2008.

Ms. Canning added: "This is the second straight quarter of reduced time to an M&A, marking a potentially emerging trend for this source of liquidity."

The two largest M&As of the quarter belonged to Cisco Systems, which bought San Francisco.-based Pure Digital, a maker of digital camcorders, for $590 million and Tidal Software of Palo Alto, Calif., a maker of workload management software, for $105 million.

The largest IPO belonged to SolarWinds of Austin, Tex., which raised $113 million in its May IPO. The company makes network and performance management tools for the enterprise.

About Dow Jones VentureSource's Research Methodology

The investment figures included in this release were collected by surveying professional venture capital firms, through in-depth interviews with portfolio company CEOs and CFOs, and from a number of secondary sources. These statistics represent equity investments into early-stage, innovative companies only and do not include companies receiving funding solely from corporate, individual, and/or government investors, or from buyout or other non-VC investment firms.

For more information, please call 415-439-6666 or e-mail adam.wade@dowjones.com, or follow the story at www.twitter.com/djventurewire. For general information about VentureSource, visit http://venturecapital.dowjones.com.

No statement herein is to be construed as a recommendation to buy or sell securities or to provide investment advice.

Copyright © 2009, Dow Jones VentureSource

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Source: Dow Jones & Company