Per my introduction, one objective of this column is to provide analysis on the venture market and highlight growth segments. In order to assess where we are at and where we are going, it’s important to know where we have been. This post serves as a rewind of the last year, via data points and statistics.
- 2009 was a down year for venture financings and M&A.
- A slight rebound was detected in the 4th Quarter of 2009
- Whiled guarded, financiers have greater optimism towards 2010.
The Bad News:
- Through the first three quarters of 2009, compared to the first three quarters of 2008, venture capital invested in Minnesota-based companies decreased from 422MM to 183MM. [PWC/NVCA MoneyTree Report]
- Nationally, 262 venture capital-backed companies were sold or went public in 2009 at a disclosed value of $12.55 billion, compared to 348 deals worth a disclosed value of $13.68 billion in 2008. [peHub, subscription required]
- Venture capital firms raised $15.2 billion in 2009, a 47% drop from 2008 and the slowest year for fundraising since 2003. [NVCA/Vator.tv]
- 83% of dealmakers surveyed say the current M&A environment is fair or poor. [ACG / Thomson Reuters Survey, subscription required]
The Good News:
- There was a 52% increase in IPOs of companies that were backed by venture capital or private equity firms, up from 22% in 2008. Most of that activity occurred during the 4th quarter (Q4) of 2009. [WSJ]
- In total, there were 13 VC-backed IPOs in 2009. That’s more than twice the number that went public in 2008. 28 VC-backed companies are currently in IPO registration. [peHub, subscription required]
- 93% of dealmakers expect an increase in merger activity, with strategic investors making most of the acquisitions. Dealmakers expect the following sectors to experience the most merger activity in the first half of 2010:
§ Healthcare/life sciences
§ Consumer products and services
[ACG / Thomson Reuters Survey]
- In the 4th quarter, company valuations began trending up for the first time in 2009. [Fenwick & West LLP]
- Venture capitalists invested $4.85 billion in clean technologies last year. [Greentech Media]
- Solar power attracted the most money — $1.4 billion — followed by biofuels at $976 million. Companies in the water industry attracted $130 million. [peHub, subscription required]
A strong IPO market in 2010 should result in a rebound in venture investing. The challenging IPO market of the last two years has staved off a key means of exit for VC firms, requiring entrepreneurs to seek strategic buyers as the optimum vehicle to harvest their investment (example is Intuit’s acquisition of Mint.com). As the IPO market blossoms, VCs will be able to flush through their pipeline of mature investments, providing fresh cash for future transactions.
As private company valuations slowly increase, more retiring baby boomers will sell their companies, creating an opportunity for middle market private equity investors.
Government stimulus money and agency programs will spur investment in clean tech and healthcare IT, creating opportunity for ambitious entrepreneurs in this space (see Minnesota’s RedBrick Health and Vast Enterprises).
In Minnesota, keep an eye on the “Angel Investment Tax Credit” combined with the “Refundable R & D tax credit” as a catalyst for new fundings.
Mobile internet, hybdrid traditional/digital marketing techniques, hyperlocal services, API extensions, android platform and the Apple tablet will be the continued (mainstream) buzz into 2010. Meanwhile, seed stage startup programs and funds will see continued growth. As consumers/businesses adopt emerging tech en masse, mobile apps and social tools which enable commerce, the rapid exchange of data and foster new connections via face to face interactions (ie Yelp and foursquare) will pave the way.
Stay tuned for more Minnesota specific data analysis as it’s known…