SAN FRANCISCO Jan 5 Venture capitalists, the traditional engine of starting up firms in Silicon Valley, saw their initial public offerings (IPOs) sputter to a halt in the last three months of 2008, two surveys revealed on Monday.
Two polls, one by Dow Jones VentureSource and the other by the National Venture Capital Association and Thomson Reuters, found that the number of IPOs dropped by more than 90 percent between 2007 and 2008, with none in the final quarter of last year.
IPOs are critical to the life-cycle of venture capital in Silicon Valley and throughout the country.
Venture capitalists invest in start-ups and those that flourish eventually go public, opening up money for new innovative enterprises. Without IPOs, the money is locked up and the innovation cycle stalls.
"New investments and fundraising will slow considerably in 2009 until the exit markets re-open and the pipeline is cleared," said Mark Heesen, president of the venture capital association.
The two surveys used slightly different criteria to classify companies as "venture backed," but came up with nearly identical results.
Dow Jones found the number of venture-backed IPOs dropped from 76 to 7 between 2007 and 2008, while Thomson Reuters and the venture capital association found the number dropped from 86 to six. Both surveys found that after the first quarter of 2008 only one venture-backed IPO took place.
"2008 proved to be a very rough year for the U.S. venture capital industry," said Jessica Canning, Global Research Director for Dow Jones VentureSource.
The story was less extreme for acquisitions, another avenue for venture capitalists to cash out their investments and go on to new ideas.
The ThomsonReuters survey found the number of mergers and acquisitions of venture-backed firms had dropped below 300 for the first time since 2003, but the decline was less than one-third from the year before.
The Dow survey found that last year, venture-backed companies generated $24.1 billion in liquidity in a combination of IPOs and mergers acquisitions, down 58 percent from the $57.6 billion in 2007. (Reporting by David Lawsky; Editing by Bernard Orr)