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Venturing Back

A bad year for venture-backed deals ended with signs of hope for 2010.
Kate O'Sullivan, | US
January 5, 2010

Although 2009 was another disappointing year for venture investors seeking liquidity, the fourth quarter showed signs of a venture-backed deal revival, according to a report released Monday by the National Venture Capital Association (NVCA) and Thomson Reuters.

The volume of venture-backed initial public offerings and mergers and acquisitions in 2009 was well short of historical averages, the report notes. There were 13 venture-backed IPOs, which raised $1.9 billion, and 262 venture-backed M&A deals, worth $12.3 billion. While the number of IPOs was more than double 2008's meager total of 6, M&A activity declined from 2008 in terms of both volume and value. The average venture-backed deal rang in at $144 million, up slightly from the previous year.

As has historically been the case, most of the dealmakers in 2009 were information-technology companies and life-sciences businesses. Overall, the past two years were the slowest consecutive years for U.S. venture-backed IPO activity since 1974 and 1975, according to the report.

Still, the fourth quarter offered investors some reasons for optimism. The three months ended in December featured five venture-backed IPOs, although only two were trading at or above their offering price at year's end. The quarter also boasted 67 venture-backed M&A transactions, including's purchase of shoe retailer for $930 million, the biggest deal of the year involving a venture-backed company.

"The stable stock market helps matters," comments Mark Heesen, president of the NVCA. "It gives investors confidence about IPOs, and gives large corporate acquirers confidence that their stock price will stay relatively stable so that they can actually go out and buy companies."

Looking ahead, "We're finally starting to see an uptick in the number of companies registering to go public," says Heesen. Currently 29 companies are in registration with the Securities and Exchange Commission. Still, given the lengthy IPO process, "the gates are not suddenly going to open with a rush of companies going public," says Heesen. Venture capitalists are looking to the second half of the year for a pickup in activity, he says.

The increase in registrations may involve some companies with no intention of going public. Some venture-backed firms are filing S-1s to drum up interest from strategic buyers, says Heesen. "They're basically putting themselves out there and saying, 'Hey, I'm Sarbanes-Oxley-compliant. Please buy me,'" he says. "It's a strategy that has worked in the past and may pique the curiosity of some buyers out there."