Tuesday, April 01, 2008

WSJ: Venture Activity Hit by U.S. Slowdown

"The nation's economic slowdown is starting to dent, or at least delay, profits for venture capitalists.

Only five companies backed by venture capitalists -- investors who back young companies and hope to make money later when the firms go public or are sold -- staged initial public offerings in the just-ended first quarter, according to the National Venture Capital Association and Thomson Financial. It was the lowest number of venture-backed IPOs since the second quarter of 2003, when there were two deals.

Similarly, only 56 companies backed by venture investors merged with other companies or were acquired for the period ended March 31. While the deals were valued at about $2.5 billion, it was the lowest number of venture-related M&A deals since the late 1990s, according to the venture-capital association.

"As far as we're concerned, the capital markets are closed until further notice," said Paul Maeder, a partner with Highland Capital Partners in Lexington, Mass. He said Highland is encouraging all of its companies to be frugal and to try to become profitable soon, rather than simply burning through cash.

The lackluster deal activity comes on top of the recent implosion in U.S. credit markets and stock-market troubles that have spooked investors and prompted calls for a financial-regulation overhaul.

"If the world is in turmoil, people don't know what's going to happen -- everybody freezes," says Alain Harrus, a partner with Crosslink Capital in San Francisco. That makes companies and bankers less likely to complete deals, he says.

Still, venture capitalists continue to fund new companies. U.S. venture investors raised $34.7 billion last year, the most since 2001, and now need places to deploy that cash."

Other Sources:
IPOs at lowest level since dot-com rebound Seattle Post Intelligencer
Economic woes sour start-ups market Boston Globe
VC-Backed IPOs Hit a Brick Wall Red Herring

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