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Ripples of credit crisis felt in US venture capital industry

Source: PTI
October 01, 2008 17:36 IST
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The effect of the trouble on the Wall Street is also being felt at the VC enclaves of the US, as the country's venture capital-backed IPO industry is set to witness its worst year on record, both in terms of volume as well as value.

"The US venture capital industry is facing the worst IPO market we have ever seen," Dow Jones VentureSource Global Research Director Jessica Canning said.

In the third quarter of 2008, VC-backed companies generated just $4.57 billion, in liquidity through merger and acquisition deals and initial public offerings,  representing a fall of 66 per cent from the year-ago period, according to the database of Dow Jones VentureSource.

"With just $551 million raised via seven IPOs so far this year, 2008 is on pace to be the worst year on record in terms of both number of IPOs and liquidity generated through IPOs," Canning added.

Canning said, "The ripple effects of the public market crisis are already being felt in the private markets. Without viable liquidity options, venture capitalists are not going to invest in innovative technologies and companies and we may see a pull back that will have long-term effects on both the public and private markets going forward."

In the Q3 of 2007, as much as $13.4 billion was generated through IPOs and M&A deals.

Meanwhile, the July-September quarter, saw as many as 66 M&As, which got completed resulting in a liquidity of $4.4 billion, but there was only one venture-backed firm -- Rackspace Hosting of San Antonio -- which managed to complete its $159-million IPO.

Though there were 66 M&A deals in the July-September quarter but there has been a significant decline in value terms on a year-on-year basis.

With only 247 M&As completed so far, 2008 is likely to see the lowest number of M&As completed in at least a decade, Dow Jones VentureSource added.

"The 66 transactions raised just $4.4 billion is the lowest amount raised since the fourth quarter of 2003 and represents a decline of 65 per cent from the $12.7 billion generated through 116 M&As during the same period last year.

The largest M&A deal of the said period was the SBA Communications' $430 million acquisition of Westborough, wireless infrastructure provider Optasite Inc.

Information technology companies accounted for the bulk of capital raised through M&A in the Q3 with 48 transaction generating over $2.9 billion in liquidity.

However, this is 60 per cent below the nearly $7.3 billion raised in 74 M&A transaction during the same quarter last year.

About 11 venture-backed health care companies completed M&As in the quarter, raising $798 million, 68 per cent less than the $2.5 billion raised through 15 M&As for the segment in the Q3 of 2208.

The consumer services industry saw three M&As generating $110 million, while business and financial services industry recorded three M&As worth $160 million.

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