Monday, January 05, 2009

Venture-backed IPOs last year hit 30-year low

Wall Street’s worst performance in decades last year took its toll on venture capitalists. There were no initial public offerings among venture-backed companies and just a “modest” 37 merger transactions involving such companies, the National Venture Capital Association and Thomson Reuters said Monday.

For all of 2008, just six venture-backed companies made their public debut, the worst showing since 1977 when there were also just six VC-backed companies that went public. Preliminary figures show just 260 M&A transactions last year, the first year since 2003 that were less than 300 venture-backed acquisitions.

Venture capitalists unable to cash in on their investments spells big trouble for the entire venture community and the broader Bay Area economy. The venture business is an engine of growth in the Bay Area, which traditionally gets about a third of all venture dollars invested.

“New investments and fundraising will slow considerably in 2009 until the exit markets re-open and the pipeline is cleared,” said Mark Heesen, president of the NVCA. “The inability of our strongest companies to go public and the softening of acquisitions activity continue to have a major ripple effect that now reaches every stage of the venture investment cycle.”

A closer look at the numbers is just as ugly. Last year had two quarters with no venture-backed IPOs. The last time that occurred was in 1975, when both the first and fourth quarters had no IPOs. By dollar volume, last year’s IPO proceeds totaled $470.2 million, the lowest since 1979, when IPOs raised $339.7 million.

And to underscore why investors had little appetite for IPOs last year, five of the six companies that went public last year were trading below their offering prices by year-end.

Last year’s largest IPO was San Antonio-based web hosting provider Rackspace Hosting’s public debut in August that raised $187.5 million.

In the merger arena, the 37 venture-backed M&A deals had a total value of $2.1 billion. Tech deals dominated the action, with 30 deals completed with a total value of $972.2 million. Almost a third of those deals involved Internet companies.

The fourth quarter’s largest transaction was eBay’s (NASDAQ: EBAY) purchase of Bill Me Later for $945 million.

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