04:58 PM

VCs Are Waiting Longer--5-1/2 Years--To Cash Out Of Tech Companies

Despite the longer wait to cash out, 2005 is looking like it could be the biggest M&A year since 2000

Getting a return on that nifty new technology company takes time: 5-1/2 years on average. That's the median time between initial equity financing and acquisition, and it's the longest time period in more than a decade, according to an analysis of third-quarter data culled by data publisher DowJones/VentureOne.

Fifty-four of the 82 U.S. venture-backed companies acquired in the third quarter specialize in IT. For the first time in three quarters, buyers paid more for IT companies than for companies acquired in health-care or products-and-services industries. The median amount paid for an IT company last quarter was $59.5 million vs. $55 million for a products-and-services and $48.7 million for health-care companies. The median amount these companies received in equity financing prior to acquisition was $22.7 million for IT companies, $26.2 million for health-care companies, and $31.4 million for products-and-services companies.

Among the third quarter's largest acquisitions of a venture-backed firm was Juniper Networks' $337 million purchase of Peribit Networks, a communications networking company.

Investors can also cash out through initial public offerings. While the 16 IPOs in the third quarter marked the most of any quarter this year, they raised less money than the third quarter last year. The IPOs raised $942 million this year, down 45% from the third quarter of 2004's $1.72 billion.

This is likely to be the biggest year for mergers and acquisitions since 2000, predicts John Gabbert, VentureOne VP of worldwide research. Companies have spent nearly $21 billion on acquisitions of startup companies so far this year.

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