Venture-Backed Exits Remain Elusive

The NVCA and Thomson Reuters have just released their data for venture-backed exits for Q1 2009 and the news is, as expected, bleak. There were 56 acquisitions of venture-backed start-ups, compared with 106 in Q1 of last year. Average dollar value for the acquisitions was $49.6 million, down from $113.6 million in the first quarter of last year and a steep fall from $140.3 million in the fourth quarter of 2008. 

What this meant for VCs was that their returns suffered. Only about a quarter of deals reported returning greater than 4x the venture investment, compared with 46% in the first quarter of last year. More than half of deals returned less than the amount invested, compared with 29% for the same period in ’08. All this, according to Dow Jones VentureSource, despite the fact that companies that were sold raised a median of $15.5 million in venture capital, 33% less than the amount raised by companies sold in the same period last year.

Almost half of the acquisitions of venture-backed start-ups were software or services companies, though the largest acquisitions were two medical equipment companies, both bought by Medtronic. CoreValve sold for $700 million and Ablation Frontiers sold for $225 million. Overall, VCs generated only $3.2 billion in liquidity in Q1, the lowest quarterly total since 2003 and down 65% from the $9.1 billion generated in the first quarter of 2008. Also worth mentioning is that for the second consecutive quarter there were no venture-backed IPOs. The back-to-back quarterly blackout is a first-time occurance since the NVCA has been keeping track of such things.

All that being said though, people seem to be focusing on the lack of firms being bought and not on the lack of companies looking to sell.  The overall M&A market is depressed, and more importantly, why would any VC want to sell in today’s conditions? Only if a VC is in desperate need for an exit would he/she consider getting out now. It has become a waiting game, and due to the fortunate position that Venture Capitalists are in (long-term fund life), they can be more patient with their portfolio companies than a manager of a publicly traded firm who has to answer to shareholders. Some of them just need to be reminded of that!

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