As reported in VentureWire last week, hit by a steep decline in the public market


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As reported in VentureWire last week, hit by a steep decline in the public markets and continuing uncertainty in the private equity markets, venture-backed exits dropped significantly in the first quarter of 2008. 

 
A report today from VentureSource, a unit of VentureWire publisher Dow Jones & Co., shows the merger and acquisition market saw 80 deals valued at $7.78 billion in the first quarter of 2008, a drop from 110 deals valued at $15.69 billion in the previous quarter and 105 deals at $10.2 billion in the first quarter of 2007.   It's the lowest number of M&A deals since the first quarter of 2003, when 77 deals took place in a year that was this decade's worst for the market.

Initial public offerings unsurprisingly came to a virtual halt in the first quarter, with only six venture-backed companies managing to go public, raising just $391.9 million. That's down from $1.89 billion raised in 25 offerings in the fourth quarter of 2007 and $1.20 billion in 13 offerings in the first quarter of 2007.

The data comes as corporate acquirers, facing slowing profits, and private equity firms, wracked by credit market concerns, have shown less interest in such deals. Further compounding the pressure is a stalled stock market. 

 
However, despite the slowdown in the economy, overall private equity fund-raising remains strong, with venture capital increasing by more than $1 billion in the first quarter compared to last year.

According to the database of Private Equity Analyst, which like VentureWire is owned by Dow Jones & Co., 81 U.S.-focused PE funds raised $58.5 billion in the quarter.  This is up 32% from the $44.3 billion raised across 68 funds in the same period a year ago. Private equity includes venture capital, secondary, mezzanine, buyout and other strategies.

The venture capital market in particular is being viewed more optimistically than other areas. Venture firms raised $4.9 billion this quarter across 32 funds, up from $3.8 billion raised by 22 funds at this point last year. 

Observers expect more money to flow to VC firms this year, as well as other niches less dependent on debt financing.

"If you're a top-tier mezzanine, middle-market PE or VC player, you will be perceived as attractive right now, in part because you're not quite as dependent on what's going on in the credit markets," said Jay Tannon, partner at DLA Piper.