Looking for a reason young technology companies are seeing so little venture capital coming in through the front door?
Check out the back door, which has all but closed off any exits through mergers or acquisitions.
According to Thomson Venture Economics and the National Venture Capital Association, 65 venture-backed companies were acquired through merger or acquisition for a total disclosed value of $1.34 billion in the first quarter. This is down from last year’s fourth quarter, when 83 companies attracted $1.62 billion. In the first quarter of 2002, 68 companies attracted $1.63 billion.
The Southeast ranked third nationally, behind California and New York, with three M&A deals for a total of $223.6 million.
The latest national M&A figures represent the lowest dollar total since the first quarter of 1996, when 27 companies were acquired for $1.23 billion. The uncertainty of economic and global conditions served to further depress an already lethargic exit atmosphere, according to venture capital industry experts.
“It continues to be the same story we have seen for the last eight quarters in terms of exit conditions for venture-backed companies,” NVCA Vice President John Taylor said in a statement. “Compared with other industry metrics, the number of venture-backed companies being acquired has held up reasonably well. However, the lower average valuations are the result of a changing mix of successful growth-oriented acquisitions and the exits of challenged companies.”
Some industry sectors saw sharp increases in total disclosed transaction values in the latest figures. Six biotechnology companies were acquired during the quarter for a total of $199.2 million, up from a single undisclosed value deal in the fourth quarter. The IT services sector, with five deals valued at $287.3 million, saw the largest surge over the fourth quarter, when six companies netted $6.2 million. But the spike was due almost entirely to a single deal: Nextel Communications’ acquisition of NeoWorld for $276 million, which was the largest single deal in the quarter.
Meanwhile, software companies attracted just $566.1 million in 22 deals during the first quarter, a fall from the previous quarter’s total of 36 deals and $655.39 million in
National Venture Capital Association: www.nvca.org
Thomson Venture Economics: www.ventureeconomics.com