Orange County Register

When Lake Forest software firm Vue Technology sold to Sensormatic Electronics for $43 million in October, it was following the common traditional exit strategy for young firms.

However, the deal turns out to be one of only 65 mergers or acquisitions in the fourth quarter, the lowest since 1999, according to Dow Jones VentureSource.

Coupled with the worst initial public offering market in 30 years, the ability of venture capital firms to get their money out of portfolio companies hit a five-year low, down 58% from 2007, according to two separate reports.

When venture capitalists or other equity investors can’t get money back on their investments, new entrepreneurial companies can’t get money to grow or develop innovations. Those tend to be the firms whose high growth creates a lot of jobs and local economic expansion.

Here are VentureSource’s five-year numbers:

There were no venture-backed IPOs in the second or fourth quarters of 2008, reported Thomson Reuters and the National Venture Capital Association.

“The most significant impact of the U.S. financial crisis on the venture capital industry has clearly taken place in the exit markets,” said Mark Heesen, president of the National Venture Capital Association. “The inability of our strongest companies to go public and the softening of acquisitions activity continue to have a major ripple effect that now reaches every stage of the venture investment lifecycle.

“As a result, new investments and fundraising will slow considerably in 2009 until the exit markets reopen,” he added.

Here are some of the lowlights from these two reports:

• VentureSource reports 325 M&A transactions in all 2008, down 29% from 2007. The total value, $23.5 billion was down 54%.
• Five of the six venture-backed companies that went public in 2008 are trading below their offering prices, Thomson Reuters said.
• 40 venture-backed companies that filed for IPOs withdrew the offerings in 2008 leaving just 28 companies waiting for a window to open so they can go public, Thomson Reuters said.
• It now takes venture capitalists an average 8.3 years to get their investments out of portfolio companies, a record high and more than a year longer than in 2997, VentureSource said.

“The liquidity markets have essentially been cut off for venture investors,” said Jessica Canning, global research director for VentureSource. “Additionally, the ever increasing amount of time it takes for a company to go public or get acquired is stretching out the lifecycle of venture funds and therefore returns to venture firms and their limited partners.”

Other economy stories…

• Entrepreneurs, consumers start ‘09 in the dumps
• How many businesses sold in your city in 2008?
• State pursues businesses for unpaid taxes on purchases
• Gov. Arnold wants bailout at fastest pace
• Sanchez doesn’t want to give Treasury a “blank check”
• O.C. property stocks hammered
• Rohrabacher not keen on bailout
• Campbell on board on bailout plan
• The McCain-Cox dustup: Taking sides
• Crisis fix recap: O.C. S&L stock doubles
• O.C. gov’t profiting from Wall Street crisis
• Pimco wants to manage gov’t-seized assets
• Meltdown recovery? It’s all about housing

More investing stories….

• Irvine firm breaks drought of IPOs
• Aktino raises $14.2 million
• RF Nano raises $8 million venture capital
• Irvine biomed firm raises $20.1 million
• Microsoft buys Aliso Viejo-based DATAllegro
• O.C. venture capital investment continues to shine
• Money raised for future VC investing rises
• Private equity fund raising suffers
• Funding for start-up firms in crisis, venture capitalists say
• Bad year for young companies, O.C. investor says

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