Venture Exits Drop 66 Percent in Third Quarter: Sign of “Nuclear Winter?” To Come

When the tech boom of the 1990s began to evaporate at the end of the last millennium, a handful of VCs-turned-meteorologists predicted the climate was turning into a “nuclear winter” for many startup ventures.

Well, it’s getting cold again.

Exits by venture-backed companies nationwide declined 66 percent in the third quarter of 2008, according to Dow Jones VentureSource. IPOs and acquisitions of venture-backed companies generated a total of just $4.57 billion over the three months that ended Sept. 30, down from $13.4 billion in the same quarter last year.

The survey counted 66 buyouts during the past three months, which generated $4.4 billion in liquidity. Dow Jones only found one IPO—Rackspace Hosting (NASDAQ: [[ticker:RAX]]) of San Antonio, TX—in a debut that was valued at $159 million.

With a paltry $551 million raised through seven IPOs so far this year, global research director Jessica Canning says 2008 is on pace to be the worst year on record in terms of both number of IPOs and the total dollar amount they generated.

Of the acquisition deals, Dow Jones VentureSource counted 14 in cities within the Xconomy network.

Among the six deals counted in the greater Boston area, SBA Communications’ acquisition of wireless service provider Optasite was the biggest, at $430 million.

The purchase price was disclosed in just three of seven deals in the Seattle region. Cisco Systems’ $120 million buyout of communications software developer Pure Networks was the biggest.

In San Diego, where Xconomy plans to launch a new site soon, the only deal reported was BioMerieux’ $60 million acquisition of AviaraDx, a developer of cancer diagnostics.

Michael Greeley, a general partner at Flybridge Capital Partners in Boston and president of the New England Venture Capital Association, notes that even the two venture-backed startups that did have IPOs in Q308 are trading down significantly. “And my guess is that two is infinitely more than what we’ll see in the fourth quarter,” Greeley predicts. The upside? “It can’t get much more dismal than the third quarter.”

Author: Bruce V. Bigelow

In Memoriam: Our dear friend Bruce V. Bigelow passed away on June 29, 2018. He was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Bruce Bigelow joined Xconomy from the business desk of the San Diego Union-Tribune. He was a member of the team of reporters who were awarded the 2006 Pulitzer Prize in National Reporting for uncovering bribes paid to San Diego Republican Rep. Randy “Duke” Cunningham in exchange for special legislation earmarks. He also shared a 2006 award for enterprise reporting from the Society of Business Editors and Writers for “In Harm’s Way,” an article about the extraordinary casualty rate among employees working in Iraq for San Diego’s Titan Corp. He has written extensively about the 2002 corporate accounting scandal at software goliath Peregrine Systems. He also was a Gerald Loeb Award finalist and National Headline Award winner for “The Toymaker,” a 14-part chronicle of a San Diego start-up company. He takes special satisfaction, though, that the series was included in the library for nonfiction narrative journalism at the Nieman Foundation for Journalism at Harvard University. Bigelow graduated from U.C. Berkeley in 1977 with a degree in English Literature and from the Columbia University Graduate School of Journalism in 1979. Before joining the Union-Tribune in 1990, he worked for the Associated Press in Los Angeles and The Kansas City Times.