Venture Exits Drop 66 Percent in Third Quarter: Sign of “Nuclear Winter?” To Come

10/1/08Follow @bvbigelow

When the tech boom of the 1990s began to evaporate at the end of the last millennium, a handful of VCs-turned-meteorologists predicted the climate was turning into a “nuclear winter” for many startup ventures.

Well, it’s getting cold again.

Exits by venture-backed companies nationwide declined 66 percent in the third quarter of 2008, according to Dow Jones VentureSource. IPOs and acquisitions of venture-backed companies generated a total of just $4.57 billion over the three months that ended Sept. 30, down from $13.4 billion in the same quarter last year.

The survey counted 66 buyouts during the past three months, which generated $4.4 billion in liquidity. Dow Jones only found one IPO—Rackspace Hosting (NASDAQ: RAX) of San Antonio, TX—in a debut that was valued at $159 million.

With a paltry $551 million raised through seven IPOs so far this year, global research director Jessica Canning says 2008 is on pace to be the worst year on record in terms of both number of IPOs and the total dollar amount they generated.

Of the acquisition deals, Dow Jones VentureSource counted 14 in cities within the Xconomy network.

Among the six deals counted in the greater Boston area, SBA Communications’ acquisition of wireless service provider Optasite was the biggest, at $430 million.

The purchase price was disclosed in just three of seven deals in the Seattle region. Cisco Systems’ $120 million buyout of communications software developer Pure Networks was the biggest.

In San Diego, where Xconomy plans to launch a new site soon, the only deal reported was BioMerieux’ $60 million acquisition of AviaraDx, a developer of cancer diagnostics.

Michael Greeley, a general partner at Flybridge Capital Partners in Boston and president of the New England Venture Capital Association, notes that even the two venture-backed startups that did have IPOs in Q308 are trading down significantly. “And my guess is that two is infinitely more than what we’ll see in the fourth quarter,” Greeley predicts. The upside? “It can’t get much more dismal than the third quarter.”

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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