Venture Capital Firms Struggle To Cash Out of Startups
By Anna Johnson on January 8th, 2009So, just how bad is the economic recession for venture capital (VC) firms and technology startups? Well, if you thought the dotcom crash in 2001 was devastating… you ain’t seen nothin’ yet!
In 2008, venture capitalists didn’t just cash out of fewer investments, they struggled to cash out of investments altogether!
According to data from the National Venture Capital Association and Thomson Reuters, only six (6) venture fund backed startups went public last year. This is the lowest number of venture backed initial public offers (IPOs) since 1977 and drastically down from the 86 IPOs in 2007.
It also pales in comparison to the post-dotcom bubble period, when VC firms still managed to do 37 deals in 2001.
Not only did the number of IPOs plummet, but ‘trade sales’ to other companies were also down. The New York Times reports that Cisco Systems, which typically buys 10 to 15 technology companies per year, bought just five in 2008.
Meanwhile, those companies that did go public performed poorly, raising only $470 million in their IPOs, the lowest amount since 1979 and down from $10 billion in 2007. And, as at December 31, 2008 only one of the companies to go public, CardioNet, was trading above its offering price.
Again, the number is a fraction of the $3.23 billion VCs still managed to achieve in 2001.
Trade sales seemed to have performed better. In 2008, there were 260 deals, of which 96 disclosed their transaction values. Total disclosed transaction values were $13.9 billion. This still trails the post-dotcom crash period of 2001, when there were 305 trade sales, worth a total of $14.75 billion.
All in all, the situation is rather ugly, with no immediate relief in sight.
On the other hand, if you’re financially secure, can build a business without outside investment, and can capitalize on the opportunities presented by the recession, you should be in good shape. Just stay that way!
Source: Claire Cain Miller, “Investors Strain to Sell Start-Up Companies,” The New York Times, January 6, 2009, Press Release, ” Venture Capitalists Utilize M&A Market to Compensate for Weak IPO Market In 2001″, February 13, 2002, National Venture Capital Association
