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Fewer Venture-Backed Companies Gain Liquidity, Get More Cash

Calculator keys (Investor.gov)

(Investor.gov)

Dow Jones VentureSource says in 2011 fewer U.S. companies backed by venture capital gained liquidity than in 2010, but those companies that left start-up status raised a good deal more capital in the process. The venture capital industry research service reports the 522 mergers, acquisitions, buyouts, and initial public offerings (IPOs) represent a 14 percent decline in number of deals compared to 2010, but the $53.2 billion raised in 2011 is a 26 percent increase over 2010.

The median amount of money needed to finance a start-up company to liquidity in the U.S. in 2011, according to Dow Jones VentureSource, was $17 million, a decline of 12 percent compared to 2010. The median amount of time needed to reach liquidity in 2011 was 5.3 years, about the same as the 5.4 years recorded in 2010.

Some 45 companies used IPOs to gain liquidity in 2011, raising $5.4 billion. In 2010, about the same number of start-ups (46) raised $3.3 billion. Dow Jones VentureSource says much of that increase in dollar volume can be traced to combined $1.7 billion raised by social media companies Groupon and Zynga in their IPOs.

Some 60 venture-based companies in the U.S. have filed IPO registrations. The median amount of venture capital raised prior to an IPO rose to $85 million in 2011, a 17 percent increase over 2010. It took a company a median of 6.5 years to reach liquidity through an IPO, down from 8.1 years in 2010.

In 2011, the median price paid for a U.S. start-up increased 77 percent to $71 million. Corporate acquisitions of U.S. start-ups raised $46.4 billion in 2011, a 30 percent increase from 2010, but the number of deals dropped from 528 to 460 in 2011. Private equity firms also had fewer start-up acquisitions. Private equity firms bought 17 venture-backed companies for $1.4 billion in 2011, down from the previous year when private equity firms bought 32 companies for $3.4 billion.

For the first time in five years, acquisition activity dropped in the fourth quarter of the year compared to the third quarter. Dow Jones VentureSource says in the fourth quarter, 103 mergers and acquisitions raised $9 billion, making it the least active quarter of the year. Yet the data still show some positive signs, according to Jessica Canning, global research director for Dow Jones VentureSource. “Acquisitions of companies liquidating their assets were halved in 2011,” says Canning,  “and companies are benefiting from lower start-up costs by taking capital farther toward a larger acquisition.”

Read more: IPOs, Mergers for Venture-Funded Companies Gain in 2010

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