IPOs, acquisitions of venture-backed companies fizzled in 2012

Monday, 7 January 2013 00:00 - - {{hitsCtrl.values.hits}}

Reuters: Venture-backed companies made less cash for their backers last quarter compared with a year ago, capping a year in which the industry came under fire for not delivering hoped-for returns.

Acquisitions of venture-backed companies totaled $3.52 billion in the fourth quarter, down 29 per cent from $4.99 billion a year earlier, according to data from Thomson Reuters and the National Venture Capital Association.

For the full year, acquisitions totaled $21.5 billion, down 11 per cent from $24.09 billion in 2011. The numbers reflect only companies that disclosed deal values.

Venture-backed companies tapping public markets raised $1.41 billion via initial public offerings in the fourth quarter, down 50 percent from $2.8 billion a year earlier, when gaming company Zynga raised $1 billion in its IPO.

For the full year, venture-backed IPOs totaled $21.45 billion, doubling from $10.69 billion in 2011. But strip away the $16 billion that social-networking company Facebook raised in May and the total actually halved.

The numbers highlight a system that relies on the success of just a handful of high-profile companies. Meanwhile, the vast majority of venture-backed companies delivered fairly moderate returns.

Eight venture-backed companies held IPOs last quarter, compared with 11 a year earlier. About 95 companies were acquired, compared with 122 a year earlier. The biggest acquisition of the quarter was Cisco Systems’ $1.2 billion purchase of wireless-networks company Meraki. The largest IPO of the quarter was human-resources software company Workday, which raised $733 million.

The venture industry has been targeted by criticism that the returns it offers do not justify the years - typically a decade or more – it requires investors to tie up their cash.

In May, the Ewing Marion Kauffman Foundation released a widely read report on venture investing called ‘We Have Met the Enemy... And He is Us’. It slammed the industry for poor returns and business practices, particularly funds that total $500 million or more.