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By Matthew Quinn
Like most sectors of the economy, there is good news and bad news in the venture capitalist world.
The good news is that there’s at least some hope of tapping the IPO market. Not much, but some.
The bad news is that venture-backed companies aren’t receiving much attention from acquirers.
There were three venture-backed IPOs valued at $572.1 million in the third quarter, a slight decline from the second quarter, according to a report released Thursday by Thomson Reuters and the National Venture Capital Association (NVCA). With eight venture-backed initial public offerings through the first nine months of the year, 2009 has already bested the full-year 2008 total.
Two of the three IPO exits for the quarter were in the information technology sector, accounting for a total of $487.1 million. Massachusetts-based battery manufacturer, A123 Systems, raised $380.4 million in the largest venture-backed IPO exit since March 2007. LogMeIn, a Boston-based provider of remote access applications, raised $106.7 million.
Of the three IPOs in the quarter, two were trading at or above their offering prices as of September 30. Eighteen venture-backed companies are currently filed for an initial public offering with the Securities and Exchange Commission.
"While we are encouraged by the success of the companies that have gone public, their performance has yet to translate into a filling of the pipeline,” said Mark Heesen, president of the NVCA, in a press release. “Companies simply are not registering to go public yet.”
M&A raised $2.25 billion in the third quarter through the sale of 71 companies, down 56 percent from the same period last year, according to a separate report released Thursday by Dow Jones VentureSource.
The largest deals of the quarter belonged to the tech industry with VMware purchasing SpringSource, a provider of enterprise Java infrastructure software, for $362 million and Intuit paying $170 million for PayCycle, a provider of online self-service payroll for small businesses.
"While it appears that the market is still holding back despite lower valuations, an upswing in M&A activity is on the horizon," said Jessica Canning, director of global research for Dow Jones VentureSource, pointing to Amazon.com’s $1 billion purchase of Zappos and CA's purchase of NetQoS, both of which are slated to close in the fourth quarter.
In what is likely a positive sign for VC-backed companies in the tech sector, Google CEO Eric Schmidt told Reuters last week that, “Acquisitions are turned on again” at the search giant.
The company expects to buy one small company a month now that the worst of the recession is behind in its estimation.
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