A Slow Year for Startup Exits

VentureSource report shows fewer deals, more money in 2011

Despite some high-profile tech IPOs, 2011 was a slow year for startups and startup investors looking for an exit, according to a new report from Dow Jones VentureSource.

Venture-backed companies saw a total of 522 mergers, acquisitions, buyouts, and public offerings in 2011, VentureSource said, down 14 percent from 2010. Another sign that interest is cooling: There was no end-of-year rush to complete deals. For the first time in five years, there were fewer acquisitions in the fourth quarter than the third.

If this becomes an ongoing trend, venture capitalists might start worrying about the exit market that might dampen their continuing enthusiasm for Web startups. Some investors are already predicting that many seed-funded startups will face "a day of reckoning" when they need more money.

Still, VentureSource found a few positive signs in the data. For one thing, even though there were fewer exits, the deals actually raised more money. The total amount raised increased 26 percent, adding up to $53.2 billion. That growth was even more significant when you look at IPOs alone, where the amount raised went from $3.3 billion in 2010 to $5.5 billion in 2011—thanks in large part to the $1.7 billion raised by Groupon and Zynga. (The two offerings were less impressive when it came to keeping share prices up.)

And the median price for an acquisition increased 77 percent to $71 million while the acquired startups raised a median of $17 million, down 12 percent. In other words, said VentureSource global research director Jessica Canning, "companies are benefiting from lower startup costs by taking capital farther toward a larger acquisition."