M&A of VC-backed startups hits four-year low

Venture investing sees lowest quarter since third quarter of 2010

So much for starting the year with a bang.

Not only are venture capitalists keeping their purse strings drawn tight, acquisitions are often an optimal outcome for startups. But it looks like buyers haven't had the appetite.  

Venture capital merger and acquisition activity in the US dropped in the first quarter of this year, ending with the fewest exits since the first quarter of 2009, according to the just-released venture report from Dow Jones VentureSource.

Some 86 M&A transactions were done for a total amount of $4.3 billion, down 44% in deal activity and a decline of 24% in capital. In the final three months of last year, 113 deals brought in $7.6 billion to the VC-backed startups.

Two out of the top three acquisitions were in the healthcare space. The biggest acquisition was Illumina's $350 million acquisition of Verinata Health. Also in the top three was Opera Software's $155 million acquisition of Skyfire. 

At the same time M&A activity slowed down, US venture capital investing continued its downward trend. 

Companies raised $6.36 billion in the first quarter of 2013, the lowest amount raised since the third quarter of 2010, when $6.1 billion was raised. In the first three months of the year, 752 companies were funded, which is pretty similar to the 732 companies that got funded just over two years ago, when we saw funding hit the $6 billion level. 

Healthcare deals accounted for almost a third of the invested capital.

In the IT space, $1.9 billion was raised by 256 companies, a 30% drop and 10% drop, respectively, from the previous quarter. It's the lowest level of investment in this sector in two years, since $1.7 billion was raised by 257 companies back in Q1 2011. 

Among some of the bigger deals done last quarter were Pinterest, which raised $200 million from Andreessen Horowitz, Bessemer, FirstMark Capital and Valiant Capital Management, and LivingSocial, which raised $110 million Institutional Venture Partners. 

Probably one bright spot in the venture landscape was the venture capitalists ability to raise funds. In the first three months of this year, 43 funds raised $4.2 billion, up 65% in dollar volume from the prior quarter. The top five funds raised were: Battery Ventures' $650 million fund, Third Rock Ventures' $500 million fund, Spark Capital's $450 million fund, Redpoint Ventures $400 million fund, and Nokia Growth Partners' $250 million fund.

While the first quarter reversed a downward trend seen since the second half of last year, the amount raised was still 33% below the same period a year ago. 

(Image source: cheezburger)