By Nicole Perlroth, Forbes
Everyone can stop mourning the death of venture capital now. Scorecards are in and by most accounts, 2010 was a good year for the venture set.
There were 72 venture-backed public offerings in 2010, the biggest year for IPOs since 2004. Nearly half those companies went public in the fourth quarter, which ended with 32 public offerings— thanks to China. Half those qualify as Chinese companies backed by U.S. venture capital funds that went public on U.S. exchanges, according to data released by the National Venture Capital Association (NVCA).
But the real story was M&A activity. After holding onto their checkbooks the past few years, corporations unleashed a series of strategic acquisitions in 2010. Over 400 venture-backed companies were acquired this year, the biggest year for venture-backed M&A exits since anyone started taking notice in 1985.
The largest-acquisition-of-the-year-award goes to Ascent Media’s $1.2 billion purchase of Dallas-based security monitoring firm Monitronics International last month. Compare that to 2010’s largest IPO —last month’s $211 million offering by New York-based FXCM, a forex trading and services provider— and Wall Street need remember it’s still too early to break out the champagne bottles and deposit slips.
But it was that same lackluster IPO market which made 2010 the year Silicon Valley learned patience. Management, early shareholders and core venture investors eschewed premature liquidity in favor of the delayed gratification of 10-20x returns down the road. Private companies opted to stay private longer, creating a backlog of potential sellers— not to mention institutional investors salivating at the chance to acquire chunks of promising start-ups. Case in point: Goldman Sachs’ reported $450 million investment in Facebook over the weekend.
That nice little chunk of pocket change will allow Facebook to poach more Google engineers, develop new products and maybe even do an acquisition or two, sans the headaches of beating quarterly earnings estimates. As for Goldman, the bank may have just secured itself a coveted role in Facebook’s eventual public offering, which sources say won’t happen until 2012, unless the S.E.C. forces the issue sooner.
Whether other buzzed-about internet properties—notably GroupOn, Twitter, LinkedIn and Zynga—will come to market in 2011 is still unclear, but there’s a hearty IPO pipeline in the works. According to VentureSource, 44 companies are now registered to go public, up from 25 at this time last year.
And after nearly three years of warnings about a VC death spiral (who could forget Sequoia’s bubbly “R.I.P. Good Times” PowerPoint deck?) confidence in the market is finally up. According to the NVCA, 67% of 500 venture capitalists and CEOs polled predicted IPO volume will increase and 55% predicted IPO quality will rebound in 2011.
