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February 15, 2005

Take My Company--Please

Justin Hibbard

Got some interesting stats from VentureOne this week. According to the research firm, 2,680 U.S. companies raised their first round of venture capital in 2000--the highest number of first-time financings ever in one year. Of those companies, how many do you think are still around? Here's a hint: only 23 of the original 2,680, or less than 1%, are now publicly held.

Surprisingly, 1,260 companies that raised a first round of VC in 2000 are still private and independent--that's 47% of the original batch. The rest have been acquired (18%) or gone out of business (34%). Is it just me, or does 1,260 companies seem like a lot? Add to them the 868 survivors from the class of 1999, and you have 2,128 VC-backed companies that are at least five years old and still waiting to go public, get bought, or go belly up. (Some may live on cash flow indefinitely, too.)

All of this leads me to a painfully obvious conclusion: we're going to see increased IPO and M&A activity among VC-backed companies over the next two years. You'll have to read this week's BusinessWeek to find out which companies are the likeliest IPO candidates (a term that is synonymous with acquisition targets these days). Most of them haven't yet filed to go public or hired bankers to explore M&A.

Several bubble-era survivors filed to go public last year, and a handful actually got deals done (Google, etc.). Since last quarter, the number of VC-backed companies in registration has dropped by one-third from 57 to 38 this quarter, according to the National Venture Capital Association. That suggests that IPO buyers, investment bankers, and VCs are still a little careful about which companies they take public. But we can't deny that increasingly speculative deals have been coming to market in the past six months. As the IPO market works through the backlog of private companies, some undiscovered gems are sure to surface--and many more lumps of coal.

08:16 PM

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