Exit Activity Rises Among U.S. Venture-Backed Companies

Dow Jones VentureSource: 111 Venture-Backed Company Exits Net $6.4B in Q3; IPOs Missing Noteworthy Names, Big Exits

Oct 01, 2010, 07:00 ET from Dow Jones & Company

NEW YORK, Oct. 1 /PRNewswire/ -- During the third quarter of 2010, 102 venture-backed companies exited via a merger, acquisition or buyout and netted $5.7 billion, a 5% increase in deal activity compared to the third quarter of 2009 when 97 exits raised $3.3 billion, according to Dow Jones VentureSource. Nine initial public offerings (IPOs) raised $723 million in the third quarter, up from two IPOs which raised $451 million in the same period last year.

"The exit markets have seen steady activity this year and solid gains over 2009's dismal numbers," said Jessica Canning, global research director for Dow Jones VentureSource. "Private markets deal activity is benefiting from acquisitions by traditional corporate acquirers as well as venture-backed companies such as Facebook and LinkedIn which are making strategic acquisitions."

Median Paid and Deal Activity in Private Markets Increased

Mergers and acquisitions (M&As) accounted for 96 venture-backed exits and $5.1 million raised, an increase from the same period last year when 90 M&As raised $2.7 million. Six venture-backed companies were bought by private equity firms for $568 million, one buyout less than the seven that netted $584 million during the third quarter of 2009.

The median amount paid for a venture-backed company in the most recent quarter was $27 million, 23% more than the third quarter of 2009.

Mountain View, Calif.-based Playdom's acquisition by Walt Disney Company for $563 million was the quarter's largest acquisition. Playdom, a developer of interactive online games, also played the role of acquirer in the third quarter before its own exit when it bought San Francisco, Calif.-based Metaplace, a social gaming technology and game design company, for an undisclosed amount.

IPOs Missing Noteworthy Names, Big Exits

The number of IPOs in the most recent quarter increased almost five-fold over the same period last year, but the amount raised rose just 60%.

"In the third quarter, many companies that went public fell victim to the market's erratic nature and priced below original estimates," said Scott Austin, editor of Dow Jones VentureWire. "With 49 companies in IPO registration, including some of venture's noteworthy names, it is clear investors and entrepreneurs are anticipating a better exit environment and are prepared to take advantage of the next opening they see."

The largest IPO of the third quarter belongs to Monrovia, Calif.-based Green Dot Corp, a provider of prepaid financial services, which raised $164 million.

Less Time, More Capital Needed to Exit on Private Markets

It took a median of 4.8 years and a median of $23 million for a venture-backed company to reach liquidity on the private markets in the third quarter of 2010. This is 20% less time and 30% more capital than the same period last year.

Venture-backed companies that went public in the most recent quarter took a median of 6.7 years to achieve liquidity, 16% less time than the 2009 median. The $51 million median amount of venture capital raised prior to liquidity during the most recent quarter is 21% higher than the 2009 median.

For information on Dow Jones VentureSource's research methodology, visit http://bit.ly/VSFAQs.

For general information about Dow Jones Private Markets, visit http://www.dowjones.com/privatemarkets.

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