"2008 proved to be a very rough year for the U.S. venture capital industry," said Jessica Canning, Global Research Director for VentureSource. "With virtually no IPOs and corporations only making choice acquisitions, the liquidity markets have essentially been cut off for venture investors. Additionally, the ever-increasing amount of time it takes for a company to go public or get acquired is stretching out the lifecycle of venture funds and therefore returns to venture firms and their limited partners."
M&As: Downward Trajectory
After peaking in 2007 at a seven-year high of $50.9 billion, liquidity generated through the sale (M&As) of venture-backed companies fell 54% to $23.5 billion in 2008. According to the statistics, only 325 venture-backed companies merged or were acquired in 2008, the lowest number of M&A tractions since 1999, and down 29% from the 457 companies sold in 2007. In particular, the 65 venture-backed companies sold for an aggregate $3.9 billion in the fourth quarter of 2008 marked the lowest quarterly transaction number since 1999 and far below the 123 companies sold for $16.4 billion in the fourth quarter of 2007.
"Overall, the median amount paid for a VC-backed company in 2008 was roughly $45 million - half of the median $90 million paid in 2007," said Ms. Canning. "Since the fourth quarter of 2007, we've seen the median acquisition price drop steadily from quarter to quarter in lock-step with the decline of M&A transactions."
According to VentureSource, the largest M&A for the fourth quarter was eBay's $945 million acquisition of Timonium, Maryland-based transaction service provider Bill Me Later. The largest M&A deal of 2008 was Dell's $1.4 billion acquisition data storage company Equalogic -- a deal that was announced in the fourth quarter of 2007 but closed in January 2008.
The IPO Market: The Door is Closed
The data shows that only seven venture-backed companies completed initial public offerings in 2008, generating $551 million in liquidity. There were no public offerings completed by venture-backed companies in the second and fourth quarters of the year.
Ms. Canning added: "There are currently 18 venture-backed companies in IPO registration but nearly all of these companies filed before the stock market fell in October and will likely remain in a holding pattern or withdraw their offerings until the market recovers."
The largest IPO of the year belonged to RiskMetrics Group of New York City, a provider of financial and wealth management software, which raised $174 million in its January IPO.
More Money, More Time Go Into Reaching Liquidity
Dow Jones VentureSource also found that it's taking more time and money for venture-financed companies to achieve liquidity. In 2008, companies raised a record median of $22.6 million in venture capital and took a record median of 6.5 years to reach liquidity via M&A.
In terms of IPO companies, the median amount of venture capital raised prior to IPO fell 19% from $69 million in 2007 to $56 million in 2008. The median amount of time it took a company to reach liquidity hit a record 8.3 years, more than a year longer than reported in 2007 when it was 7.2 years.
