VentureSource: Worst venture liquidity in five years

January 2, 2009 | Anthony Ha | Comments | |

Now that 2008 is over, we can officially declare it the worst year for U.S. venture liquidity since 2003 (when the industry was still feeling the effects of the bursting tech bubble). This year, venture-backed companies generated $24.1 billion through initial public offerings (IPOs) and mergers and acquisitions (M&As), down 58 percent from $57.6 billion in 2007, according to Dow Jones VentureSource.

That drop is particularly worrying when you consider that most of the deals happened before the financial industry’s collapse in September and the resulting stock market plummet, so you can expect early 2009 to be even worse. A better indicator of the months ahead is the fourth quarter alone, when there were no IPOs, and M&As only generated $3.9 billion — the lowest amount in a single quarter since 1999. Meanwhile, the $551 million earned from IPOs during all of 2008 marks a drop of more than 90 percent from 2007, and is the lowest total since VentureSource started tracking this data in 1992.

Venture firms aren’t just making less money, either; they also have to wait longer for their investments to pay off. The median time to exit via M&A was 6.5 years, and the median time to IPO was 8.3 years — both numbers setting new records for length.

So there’s got to be some good news on the horizon, right? Well … it depends on how far out you’re looking. The venture capitalists surveyed recently by the National Venture Capital Association said the IPO market won’t open until 2010. We’ve also predicted that tech IPOs will be scarce for all of this year.

Here are the year’s top M&As, according to VentureSource:

And here are the top IPOs:

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About the Author, Anthony Ha

Anthony is VentureBeat's assistant editor, as well as its reporter on enterprise technology, cloud computing, and tech policy. Before joining VentureBeat in 2008, Anthony worked at the Hollister Free Lance, where he won awards from the California Newspaper Publishers Association for breaking news coverage and writing. He attended Stanford University and now lives in San Francisco. Reach him at anthony@venturebeat.com. You can also follow Anthony on Twitter.

  • This is not really new information, but is a good reminder of what we in the Venture Community already know. What this article does remind us though is that often when something makes its way into print or the blogosphere it is referenced past events and making them current again -- something that reaffirms a negative cycle. Those of us that have money to deploy are looking forward and asking ourselves a few key questions: (i) what types of companies are going to be attractive to investors in three to five years, (ii) are our businesses properly configured to take advantage of those opportunities and (iii) how can we help entrepreneurs take the risk and succeed during a time where the negative energy is pervasive.
  • I agree that this just confirms an existing trend -- one that VentureBeat has covered extensively -- but the data itself is new, and was just released today. You can't make an apples-to-apples comparison between 2007 and 2008 until 2008 is over.
  • elliottdahan
    The Venture Risk Investing industry is divided into 3 distinct groups: (1) Seed/Startup; (2) Traditional VC and (3) Exit

    They are systemically, operationally and attitudinally different. They have different metrics for acceptance and success; funding, oversight, sourcing, profitability and, most importantly, infrastructure.

    What is needed is a dedicated effort to work with, support and compensate the Seed Infrastructure (Incubators, Economic Development Agencies, Tech Transfers). This infrastructure already exists and provides the efficient sourcing, screening and post-investment oversight needed to develop Series A worthy companies. What is needed is a dedicated effort that is not geographically constrained. What is needed is a thorough Virtual Incubation system that brings both Community and Collaboration to all elements of the total Investing community.

    By dedicating a private/public collaboration to increasing the value and viability of early stage companies you are also increasing their valuation for their Series A round; thereby leveling the playing field with what will be a smaller group of Traditional VC funds.

    This Seed dedicated effort can take two forms:

    (1) Standalone Fund
    (2) Operating Division of a Traditional VC Firm

    Please review the powerpoint – The START Fund - http://www.slideshare.net/ElliottDahan/start-fu...

    I look forward to all comments.

    Thank you,

    Elliott Dahan
    Elliott@thegrowthgroup.com
  • This barely seems relevant to my post at all. Am I missing something?
  • Peter
    Elliot, is this a canned comment you're using to promote this "START" fund?
  • elliottdahan
    Peter -

    This is not a canned comment. I wrote this in response to Anthony's post.

    And "yes", I believe in the need and opportunity of The START Fund. I am hoping to implement this Seed fund decdicated to working with, supporting and compensating the Seed Community.
  • elliottdahan
    Anthony -

    I believe my post is very relevant to your post.

    By strengthening the Seed level, you strengthen the potential for successful exits.

    But, you cannot expect the Traditional VC stage to work with, support or compensate the existing Seed Infrastructure (incubators, tech transfers, economic development agencies, etc.) You cannot expect the Angel level of investing to efficiently source, screen and provide oversight to a Seed Community with no geographic constraints.

    First, strengthen the Seed Level

    Second, "clean out" the traditional VC level

    Thanks
  • OK, fair enough. It would have been nice if you had made the connection more explicit in your initial comment, but I probably overreacted.
  • elliottdahan
    Anthony -

    Perfectly understandable.

    Have a good New Year and keep up your good writing - I really enjoy your work

    Elliott
  • anthony: while the top-end is interesting, the median case (for exit via smaller M&A) is possibly more educational. might be useful to look at distribution curve / graph of exits on quarterly basis, and then compare median exits over time.

    guessing overall trend is towards smaller median exit, which might be ok for angels & smaller VCs, not so great for traditional VC. also interesting if median skewed down a lot or a little in Q3-Q4/08, and going forward in 2009.

    to summarize: median case may tell us more than outliers.
  • Anthony it would be nice to see more measures of the total investment in all startups or a cross sections of startups over various periods of time. I'm concerned that the stories always feature the big winners and thus I think inflate the actual VC returns which I think are very negative these days as companies go belly up.