US venture-backed companies lack liquidity

Exit opportunities for US venture-backed companies contracted in the first quarter of this year, according to a recent study.

Venture-backed companies produced $8.2 billion (€5.2 billion) in liquidity via mergers and acquisitions and initial public offerings in the first quarter of 2008, the lowest quarterly total since the fourth quarter of 2005, a Dow Jones study found.

“The first place that venture capital investors will feel effects from the broader financial markets is in the liquidity market, and we’re certainly seeing the turbulence and economic uncertainty constrain exit opportunities for private companies right now,” said Dow Jones VentureSource global research director Jessica Canning in a statement.

In the first quarter of 2008, 80 M&A transactions were completed producing $7.8 billion in liquidity, down from 105 transactions producing $10.2 billion in liquidity the same quarter of 2007, according to the Dow Jones VentureSource Quarterly US Liquidity Report. Median acquisition prices of venture-backed companies decreased from $90 million to $63 million.

Initial public offering-generated liquidity decreased from $1.2 billion in the first quarter of last year to $392 million in the same period this year. The quantity of listings decreased from 13 to six. The average amount raised in the IPOs of venture-backed companies fell 34 percent to $53 million.

It took an average of $24.8 million in venture capital over seven years for companies to complete this quarter’s M&A transactions and $56 million over 8.3 years to complete this quarter’s IPOs.