How bad has the downturn been? Nearly a year after
Firms are still able to raise funds, startups are raising cash, strategic acquirers are buying and at least a handful of companies have managed to piece together public offerings.
Still, it’s been anything but easy.
Brand name firms raised big funds during the third quarter. Most notably, Vinod Khosla closed on $1 billion for two cleantech funds and Marc Andreessen raised a $300 million debut fund for
To be sure, not everyone has had an easy time.
Throughout the past year, large institutional limited partners became less likely to commit to VC and PE funds as the size of their public holdings diminished. The California Public Employees’ Retirement System has done due diligence on just six private equity funds this year, down from the 31 it looked at in 2008 and way off pace from the 76 it closely examined in 2007, according to public reports.
This, it’s no surprise then that VC fund-raising took a downward turn during the third quarter, with 14 U.S.-based venture funds raising about $1.5 billion, according to preliminary data from Thomson Reuters (publisher of PE Week). That’s down from 55 U.S. funds that raised $8.1 billion during the same period in 2008.
There’s little doubt that cash-strapped startups are having a harder time raising capital during the midst of an economic downturn, compared to a year ago. More than 350 startups nationwide raised $2.85 billion in the third quarter, according to preliminary data from Thomson Reuters, compared to 867 companies which raised $6.4 billion during the same period a year ago.
Most of the capital evaporation came from corporate and banking pools, which typically are the first investors to back off from investing in startups when the economy takes a turn for the worse. Consider a handful of mega deals done last year, such as the $140 million financing of
Still, the most talked about startups don’t have any trouble getting funding from dedicated investors. During the third quarter,
Even Sequoia Capital itself, the dowager of doom from last year, has been busy. The firm participated in 14 investments during the third quarter, helping startups and late stage companies raise nearly $200 million collectively, records show.
Startups saw a ray of hope from strategic acquirers during the third quarter, as corporations again looked again to cherry pick from the private market. Just last week, Google Inc. said it expects to buy one small company a month as it rekindles its acquisition engine (see story, page 7).
The largest acquisition in Q3 was Amazon’s $928 million purchase of Zappos for cash and stock. Zappos had raised $60 million from Sequoia Capital and other investors.
Other notable acquisitions in Q3 included:
• McAfee, which bought email protection startup MX Logic, for $170 million. The company had raised about $33 million from
• Computer Associates bought network performance company NetQoS, for $200 million. The company raised $16 million from
• Intuit bought consumer financial management company Mint.com, which had raised about $32 million from
• And VMWare bought Web-development company Springsource, after it raised $15 million from Benchmark and others, for $420 million.
Perhaps the best news for VCs during the third quarter was the IPO market, which showed a rebound and was highlighted last week by the debut of lithium-ion battery maker
A123 had raised $242 million in venture funding, before the offering, from
Meanwhile, other venture-backed companies recently set their IPO terms, paving the way for IPOs in the next quarter.