partnerships like Flybridge that focus on early-stage startups will continue to be active this year. “This could be one of our best years, from a new investment perspective,” he says. “The difference is that you are seeing more milestone financing. From an entrepreneur’s perspective, if you thought you needed $10 million, you may find you can raise $5 million, and then $5 million more based on reaching a certain milestone. The caution is reflected in the investments being more structured, and the investors holding a tighter rein on the business plan.”
But the NVCA’s Heesen says that if the IPO drought continues much longer, it could keep venture partners from cultivating new investments. “The most important commodity a VC has is time, and if they have to hold on to companies that they thought they would have exited by now, they have less time to go out and find and fund new emerging companies,” Heesen says. “If this continues over the next couple of quarters I do think you will see a reduction in the number of new companies being funded.”
So if an IPO isn’t a viable option for a growing startup right now, what about Door Number Two—acquisition? That doorway, too, has swung partway closed, though there is still room to squeak through. In the first two quarters of this year, there were only 120 mergers and acquisitions involving venture-backed companies, compared to 169 for the same period in 2007, 212 for the same period 2006, and 162 in 2005, according to the NVCA. Information technology companies were the luckiest in the second quarter: 36 of them found a buyer, compared to three life sciences companies and 11 companies in other fields. In most cases, the parties didn’t disclose the amounts of the transactions, but for the 14 M&A deals where the values were disclosed, the average take was $171 million.
