"Pick up the phone" for a liquidity event: M&A still outpacing IPO as exit strategy

The year-end numbers on initial public offerings and acquisitions confirm what investors have known for several years now: while the number of IPOs is rising steadily, M&A continues to be the main exit route for an overwhelming percentage of venture-backed startups.

More than 87% of the total dollar amount of startup liquidity events came in the form of mergers or acquisitions, according to the latest figures from Dow Jones VentureSource. Although the number of M&A deals fells slightly to 398 from 420 a year ago, the aggregate amount of those transactions surged to $46.2 billion from $32 billion.

Meanwhile, the amount raised in IPOs in 2007 surged to $6.7 billion, from $3.7 billion in 2006, while the number of offerings  climbed to 74 from 56. (The 2007 figures don't include the monster stock offering from VMWare, which was and remains a unit of storage giant EMC.)

The IT industry outpaced the health care and retail/consumer sectors in the IPO tables for 2007, with software and networking the top two IT markets. 

What are startup execs to take away from the numbers?

One common-sense piece of advice comes from Paul Deninger, vice-chair of the investment bank Jefferies & Co.

"Answer the phone when the phone rings," Deninger told Vator.tv, when we caught up with him at the Always On Venture West conference and asked what advice he would give to startup executives trying to decide to go either M&A or IPO.

Maintaining "option value," by keeping all options open as long as possible, is in the best interest of any startup facing that decision, Deninger says. 

"During the lead-up to an IPO, there's always the opportunity to test the water from an M&A standpoint."

To see other insight on investment banking, and to see a previous interview with Deninger discussing what institutional investors are looking for right now, click here, and to see his take on  the "green bubble, " click here.