With new funding difficult to come by, many cash-burning startups are finding that they have no choice but to take a scrap sale. Those desperate deals cut M&A spending on VC-backed startups in the second half of 2008 by nearly three-quarters over the same period in 2007. From July to December last year, 100 venture-backed startups got acquired, for a total bill of just $3bn. That compares to 153 startups sold for a total of $11.1bn during the same period in 2007.
And we’ve seen more of these types of deals so far this year. Oracle, SAP, Barracuda Networks and Quest Software, among other large technology buyers, have all purchased companies for less than the money raised by the startups, according to our estimates. Consider the specific case of Mirage Networks. The network access control (NAC) vendor raised some $40m before discovering that NAC wasn’t really a market after all. (The eight-year-old company generated an estimated $5m in sales last year.) Trustwave picked up Mirage for some $10m, we estimate. Meanwhile, Mazu Networks will have to hit all of its earn-outs to make its investors whole again. About a month ago, Riverbed Technology said that it would pay $25m upfront for the network security vendor, with a possible $22m earn-out. That’s actually not a bad outcome for unprofitable Mazu, which we understand was burning about $1m each quarter. And yesterday, Netezza picked up the assets of data-auditing and protection vendor Tizor Systems for $3.1m; Tizor had raised $26m from investors.
VC-backed tech startups M&A
Source: The 451 M&A KnowledgeBase