Successful exit activity for venture-backed companies rose 25 percent in 2010 from the previous year, reaching levels close to those seen before the recession and netting $39 billion in liquidity for 514 companies, according to a study released today by Dow Jones VentureSource.
However, although the amount of successful exits was up, they are still lagging in size dollar-wise, as “blockbuster” events stayed largely out of the headlines because VCs are holding onto the companies they view to have the most potential.
That could make 2011 the “year of the IPO” if several well-known Silicon Valley stars decide to go public.
“Exit activity is staging a comeback but capital netted lagged as large M&As and IPOs were still uncommon in 2010,” said Jessica Canning, director of global research for Dow Jones VentureSource. “While it isn’t clear if companies with blockbuster potential – like Facebook and Groupon – will come to market in 2011, there is a healthy IPO pipeline. Currently, 44 companies are registered to go public, up from 25 at this time last year.”
The data also showed that for now, buyouts of venture-backed companies by private equity firms remained steady year-over-year. In 2010, private equity firms spent $1.9 billion to buy 23 venture-backed companies, roughly the same amount as the $1.1 billion PE firms spent to buy 23 venture-backed companies the year before.
That spike in valuation is a potential sign of health in the VC arena, with the $46 million median amount paid for a venture-backed company in 2010 booming to 70 percent more than the $27 million median paid in 2009.
There was also good news on the amount of time it took for a venture-backed company to exit via a merger or acquisition, with 2010 seeing companies successfully exit at 5.2 years, slightly less than the 5.5-year median in 2009.
Buyout size was also larger. During the fourth quarter, three buyouts grabbed $184 million, a jump from three buyouts that netted $76 million during the same period last year.
“After holding back on acquisitions the last couple of years, corporations found themselves with a significant amount of cash on hand and the need make strategic acquisitions to maintain a competitive edge,” said Scott Austin, editor of Dow Jones VentureWire. “Combined with rising valuations that made investors and entrepreneurs more inclined to sell, M&A picked up – a trend likely to continue into 2011.”