CORRECTED-US venture capitalists struggle due to frozen markets
(Corrects authorship of Silicon Valley venture capitalist index in 14th paragraph of Oct. 1 item)
SAN FRANCISCO, Oct 1 (Reuters) - Venture capitalists struggled to find takers for their companies in the third quarter, as jittery investors held onto their wallets and established companies were more cautious about buying start-ups, according to several new surveys.
Compared to the beginning of the year, confidence levels among venture capitalists in Silicon Valley have also plummeted, as the credit crisis shows no signs of abating.
Only one venture capital-funded company, Rackspace Hosting Inc (RAX.N), went public during the third quarter, according to a survey released on Wednesday by the National Venture Capital Association (NVCA) and Thomson Reuters.
Rackspace's stock is trading 33 percent below its initial public offering price of $12.50 on Aug. 7.
The financial markets crisis is causing venture-backed companies to postpone or shelve their plans to go public, said NVCA President Mark Heesen. The NVCA is the venture capital industry's largest trade group, with nearly 500 members.
So far this year, only six venture capital-backed companies have gone public. Another 28 such companies have withdrawn their registration statements for an initial public offering of securities, the survey said.
"The ripple effects of the public market crisis are already being felt in the private markets," said Jessica Canning of Dow Jones VentureSource, which released its quarterly survey on Tuesday.
Venture capitalists invest in new companies, making bets that they will become household names like Google Inc (GOOG.O), Apple Inc (AAPL.O) or Intel Corp (INTC.O), and bring them handsome returns when they eventually go public or get sold to a large competitor.
In recent years, venture capitalists have preferred to sell their start-ups rather than take them public because the return on investment is higher and stringent listings requirements have made IPOs more expensive.
WAITING FOR A TURNAROUND
But even the mergers-and-acquisitions route has been hit this year due to the credit crisis. Only 58 start-ups were sold during the quarter, roughly half the number of such transactions in the year-ago quarter, the NVCA-Thomson Reuters survey said.
Heesen said acquiring companies are more uneasy right now and being cautious in their strategies until there is a turnaround in the wider market.
Venture capitalists are relatively insulated from short-term market fluctuations because they invest in companies with the expectation that they will recover their dollars several years later. But if the current markets crisis continues, it could affect new venture capital investment, the NVCA and two other surveys said.
A PricewaterhouseCoopers survey released earlier this week found that venture capitalists in Silicon Valley -- the stretch of land in northern California home to some of the world's best-known venture capital firms and technology companies -- lack confidence about their business environment. Continued...
