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Start-up IPOs dive in 2001

The initial public offerings of venture capital-backed companies post the lowest returns in seven years, according to VentureOne.

The initial public offerings of venture capital-backed companies last year posted the lowest returns in seven years, according to VentureOne, a venture research company.

In all, 21 venture-backed tech companies raised a total of $1.73 billion in the IPO market, VentureOne reported Monday. That's a 90 percent drop from 2000, when 200 companies raised nearly $19 billion. The returns are the lowest since VentureOne began tracking the figures in 1995, with the next lowest year being 1998 with $3.73 billion.

"The year 2001 from a VC point of view was a total absence of activity," said Stewart Alsop, a general partner at New Enterprise Associates, a venture capital firm.

Of the 21 IPOs, 11 were health care companies and nine were information technology companies. The fourth quarter was the strongest of a weak year, with eight companies going public with about $751 million in backing, according to VentureOne.

In 2000, 107 technology companies launched IPOs, including 48 software makers and 34 communications/networking companies.

Merger activity also slowed, with the total value of merger transactions dropping 80 percent to $19.8 billion from $101 billion in 2000. The number of deals fell 23 percent to 341 from 443.

Alsop said 2001 was a return to saner valuations and more solid business practices.

"What happened in 1998, 1999 and part of 2000 was an anomaly," Alsop said. "We're thrilled to be back to a time when valuations are more reasonable and companies are trying to see how little capital can be used."

The median amount raised per IPO fell to about $63.1 million from $75.5 million in 2000, but stayed on par with 1999's median of $62.4 million. The median valuation of start-ups before an IPO also dwindled down to nearly $288 million in 2001 from $364 million in 2000 and $316 million in 1999.

This decrease, while painful, has spurred VCs to return to more reasonable valuation methods which weed out the weaker companies after a period of unparalleled excess in the IPO market.