Cautious Buyers Steer Clear Of Startups But Some Good News For Young Companies

Even with prices down, buyers of technology startups balked at bargain hunting in the second quarter as the merger and public offering markets remained in a downturn induced paralysis.

Three initial public offerings of venture-back companies took place during the cautious three months – the first IPOs in about nine months.

But overall, money raised by venture capitalists selling or floating the shares of their portfolio companies fell 57 percent, according to Dow Jones VentureSource. The industry took in just $2.8 billion compared with 6.5 billion a year earlier.

What’s more, the median price paid for startups fell to just under $22 million, down 46 percent.

The dire results led Jessica Canning, VentureSource’s director of global research, to suggest that 2007, when the mergers ad IPO markets began to revitalize after six slow years, was an anomaly. “The market appears to be correcting the possibly inflated figures,” she said.

But the results are most likely the result of gun-shy buyers and investors waiting out the worse of the economic downturn before committing cash. And it is likely to continue as long as the deep uncertainty of the downturn remains.

At the top of the list of active buyers was Cisco Systems, which bought camcorder maker Pure Digital for $590 million and Tidal Software, a maker of workload management software, for $105 million.

The largest IPO came from SolarWinds of Austin, Texas, which went public and raised $113 million in May

But in a positive sign for startups, VentureSource found that the average company was younger and raised less money than a year ago.

The median age of an acquired company was 4.5 years, compared with 6 years in the second quarter of 2008. At the same time, that company raised $16.3 million, down 30 percent from a year earlier.

In this year’s quarter, 67 venture-backed companies were sold for $2.57 billion, a 60 percent decline.