RESEARCH TRIANGLE PARK, N.C. — Investors hoping to cash in on venture deals did more watching than cashing in during the third quarter, according to the National Venture Capital Association and Thomson Financial as well as Dow Jones and VentureOne.

The number of initial public offerings by venture capital-backed companies has fallen to “alarmingly low levels”, and the action hasn’t been much hotter on the merger-and-acquisition front either, the organizations said in their quarterly report.

In other words, liquidity was not available in abundance.

Only eight IPOs for venture-backed firms were reported in the quarter — the lowest number since 2003. The deals generated $934.2 million. While the dollars raised nearly doubled the amount of $540 million for 10 IPOs in the first quarter, the total was less than half the $2 billion generated by 19 IPOs in the second quarter.

“The venture-backed IPO volume has fallen to alarmingly low levels, suggesting that the public markets are not the destination they once were for emerging growth companies,” said Mark Heesen, president of the NVCA, in a statement. “The few companies that are going public today are doing so successfully, which should be encouraging to those in and considering registration. However, the IPO path remains risky and expensive from a regulatory and market perspective, and currently there are not enough companies pursuing this exit strategy to keep the U.S. economy humming.”

Dow Jones VentureOne reported eight IPOs worth $623.3 million. That total was down from 17 IPOs worth $956 million for the same quarter in 2005.

In a bit of good news, according to the NVCA, 51 companies still have registrations with the Securities and Exchange Commission to go public. That’s up from 41 at the end of the second quarter.

By the way, the largest IPO of the third quarter was generated by a Chinese-based medical equipment manufacturer. Its offering drew $270 million, the NVCA and Thomson reported.

On the M&A front, 74 deals were reported, the lowest number since the second quarter of 2005. The value of the 34 deals that were disclosed was $2.7 billion,

“We hope that the lower acquisition volume is a quarterly aberration and reflective of a slower summer business climate,” Heesen said. “We would like to see the number of transactions increase 15-20% next quarter as investors cannot enjoy the quality rates of return if the two major paths to liquidity are not open to them.”

Most deals were in technology (52), with 17 involving software and 13 Internet specific. In all, 15 life science deals were reported.

Dow Jones VentureOne reported 97 M&A deals worth $6.78 billion for venture-backed companies in the third quarter. That total was down from 111 deals worth $8.38 billion in 2005.

However, for the year VentureOne expects an increase in liquidity events over 2005.

“Despite a slowdown in the third quarter, the year is on track to meet or exceed last year’s liquidity levels, proving there is opportunity for promising companies to exit portfolios,” said Steve Harmston, director of global research for VentureOne, in a statement. “So far this year, $23.03 billion has been paid in 311 M&As, putting the activity on track to match last year’s M&A levels. In addition, $2.47 billion has been raised in 37 IPOs through the third quarter, almost assuring that the IPO activity will surpass last year’s 42 IPOs and $2.56 billion.”