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NVCA Shows Mixed Results for Venture-Backed IPOs and Acquisitions in Q2 2010

The NVCA and Thomson Reuters recently published Q2 data on venture-backed IPOs and acquisitions. The data shows a mixed bag of results.

The number of public offerings in Q2 was 17, a marked increase over 9 IPOs in Q1, and nearing the numbers we saw back in 2007. This would seem to indicate that the market for IPOs is improving, although the average IPO offer amount actually dropped in Q2 from $104M to $75M. So there were more IPOs in Q2 2010 but they were, on average, worth less.

The numbers get a bit more confusing when looking at venture-backed mergers & acquisitions. The total number of venture-backed M&A deals decreased in Q2 (92) from a high in Q1 of 119. The Q2 number is still significantly higher than what we saw at the tail-end of 2009. So it’s unlikely that Q2 marks a downward spiral on mergers and acquisitions.

Perhaps the more interesting number is the average size of M&A deals in Q2 which dropped to $133.3M. We have now seen two quarters of decline from Q4 2009 ($222.6M) and Q1 2010 ($180.2M). From Q4 2009 to Q2 2010 that’s a 40% drop in average deal size. The drop in average acquisition value is indicative of a movement towards early exits, where startups and early stage companies are raising less venture capital and selling their businesses faster.

Another interesting data point is comparing the average returns on venture-backed M&A deals between Q1 and Q2. What we see is a consistent number of 10x and 4x-10x deals in Q1 and Q2. So there were an equal number of very successful venture-backed M&A deals in Q1 and Q2, indicating an overall health or reasonable health in the venture markets.

We also know that the VC industry is shrinking. This is shown clearly by NVCA data that shows venture investment dropped 50% in Q2 (versus Q1). The lack of venture investment is a critical issue that is going to have a significant impact on future exit numbers.
Here is some additional analysis on the NVCA numbers:
Q2 Exit Market: Implications Beyond Recovery
The IPO Survives! Second Quarter Sees $900 Million Worth Of Exits