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Mergers, acquisitions climb in first quarter

Mergers and acquisitions among venture-backed companies rise in the first quarter, new figures show, but the amount of cash these companies raised decline substantially.

Mergers and acquisitions among venture-backed companies increased in the first quarter, but that bit of good news was offset by a decline in investors putting money into new venture funds.

There were 62 M&A (mergers and acquisitions) deals during the first quarter, up nearly 38 percent from the previous quarter. But while the number of deals rose, the amount of cash raised from the transactions fell 27 percent to nearly $7 billion.

"The VCs should be happy with the M&A numbers since these deals show they've been able to give money back to their investors," said Jesse Reyes, a spokesman for Venture Economics, a venture research company that released M&A statistics Wednesday. "The bad news aspect of this is that VCs knew fund raising would be tough."

Despite the drop in valuations, venture firms have been fortunate in being able to exit their investments through mergers--given that the IPO market has virtually dried up. Venture firms are finding that they have only two ways to cash out of their investments: public offerings or M&A deals.

Internet companies racked up the largest volume of M&A deals, with 18 transactions taking place during the quarter. Computer software and services companies were not far behind, with 11 deals. But the amount of money raised by these two sectors was $545.4 million and $432.5 million, respectively, while the communications sector and media sector grabbed $3.9 billion from just seven deals--although Ciena's $2.8 billion buyout of Cyras Systems accounted for most of that figure.

While M&A may have created some goodwill between venture firms and their investors, it did not necessarily translate into limited partners opening up their wallets.

Show me the money
Venture-backed companies saw a rise in the number of mergers and acquisitions in the first quarter--reaching 62 deals from 45 in the previous quarter. Technology deals accounted for the lion?s share of the transactions.

Industry No. of Deals Total Value
  Communications/Media

    7     $3.9 billion  
  Computer Software and Services

    11     $432.5 million  
  Internet

    18     $545.4 million  
  Semiconductors and Electronics

    4     $48.4 million  
Source: Venture Economics and National Venture Capital Association
VC firms raised $16.1 billion among 95 funds during the first quarter, down substantially from the nearly $24 billion raised among 147 funds in the previous quarter, according to New York-based Venture Economics.

"What the numbers may not show is that VCs are sitting on about $35 billion in capital, so a lot of these guys are not going out and trying to raise more money," Reyes said. "Underneath that, though, there may be a little bit of paranoia and fear that if they did try to raise more money right now, they may not be able to do it."

New York-area venture firms had the most success in raising capital during the first quarter, edging out longtime titleholder Northern California. Venture firms in greater New York raised $4.8 billion, surpassing Northern California firms, which raised $4.7 billion.

Funds that invest in companies seeking their first rounds of funding accounted for $5.7 billion, or 36 percent, of the money raised in the quarter, while funds that span from seed to later stages of funding represented 45 percent of the total raised.

The average fund raised $169.5 million in the quarter, but Oak Investment Partners X raised a sizable $1.6 billion. Oak was one of four funds to raise more than $1 billion during the first quarter.