Venture capitalists, who have not had much luck selling their investments to the public lately, are having almost as much trouble trying to sell their investments to other companies.
The number of venture-backed companies sold in the first three months of 2003 fell to its lowest point in seven years. Only 65 companies were sold, for about $1.3 billion, according to the National Venture Capital Association. By comparison, during the first three months of 2000, at the height of the Internet boom, 93 companies were sold for $23.8 billion.
“If you have to sell a company it’s really bad,” said Jack Biddle, a venture capitalist at Novak Biddle Venture Partners in Bethesda. “To get a fair price selling a company you need two bidders. One has to be motivated by fear and one by greed. But there’s no greed out there. Just fear.”
Venture capitalists, who invest in young technology companies, primarily recoup their investments in two ways. They can either sell their companies to the public, in an initial public offering of stock, or they can sell their investment to another company. IPOs for venture-backed companies have grown extremely rare. In the first quarter of 2003 there was just one, when Accredited Home Lenders Inc. raised $77 million.
Just as the number of IPOs has fallen, so has the number of mergers and acquisitions. The difficult climate for selling prior investments, some venture capitalists say, is helping to retard the growth of new venture investments in start-ups and hurting the returns of current funds.
“If you have a company that can’t be financed on economic terms and you have to sell the company, than you’re in deep yogurt,” Biddle said.
Locally, five venture-backed companies were acquired for $188 million in the first quarter of the year. And like the venture industry as a whole, most of the merger and acquisition activity occurred among software companies. Twenty-two companies in that sector were sold for $566 million. The largest deal of the quarter nationally was the $276 million purchase of NeoWorld, a graphics design firm, by Reston-based telecom company Nextel Communications.
Reported By TechNews.com, http://www.TechNews.com
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