The final step in a venture capitalist’s involvement in a portfolio company is the exit of the company that the VC firm has put its time and money into. This is the point at which VCs can recoup their investment, hopefully many times over.  Companies can exit in several ways, but a trade sale to another company, or an initial public offering are generally considered to be the most profitable.

Following the recent release of Library House’s Quarterly Briefing for Q2/2008, we explored the exits in this quarter, with regards to how many companies exited, and for how much, as well as examining the companies that made the most prominent exits in closer detail.

There were 63 exits by trade sale or IPO in Q2/2008, trade sales making up 60 of the exits, and IPOs only representing 3 exits. See Figure 1. Considering that there were 31 IPOs in the same quarter in 2007, this just serves as a reminder to the current IPO drought.

Of the companies that exited by IPO, French healthcare and life sciences company Ipsogen had the highest exit by value, issuing shares on the Alternet Paris Exchange in June 2008, resulting in a total market capitalisation of €31.9m. Ipsogen specialises in cancer diagnostics, developing and marketing diagnostic tests that profile the wide variety of cancerous tumours, helping oncologists to decide on the right treatment for the particular cancer. Ipsogen took six years from its first round to exit, having raised €11.36m in four rounds of funding, roughly providing a 2.8 times estimated return on investment. It is important to note this is on the lower scale for IPOs, and given that the company listed on the Alternet Exchange, the fact that the primary purpose of the IPO was to raise new investment cannot be ruled out.

Of the top five trade sales of European companies last quarter, deal sizes varied from €27.8m for the sale of UK IT company Jacobs Rimell to Amdocs, to €146.6m for the sale of German pharmaceutical company U3 Pharma to Japanese company Daiichi Sankyo.

Like Ipsogen, who had the largest IPO by value, U3 Pharma is also in the healthcare and life sciences sector. U3 Pharma is involved in targeted cancer drug development using antibodies, which is further upstream from Ipsogen, which is primarily focused on cancer diagnostics. U3 Pharma also took seven years to exit, having been founded in July 2001 and sold in May 2008, and raised €37m in three rounds of funding, resulting in nearly a four times return on investment.

The second highest trade sale by value was that of PIramed, also a Healthcare and Life Sciences company. PIramed, based in the UK, is also involved in developing novel cancer drugs, but this time using small molecule inhibitors of proteins involved in maintaining normal cellular function, which can go awry in cancer patients. PIramed exited in around six and a half years, and was sold to Roche in April for €110.5m. The company’s funders included JPMorgan Partners, Merlin Biosciences and Genentech.

It is interesting to note that three of the top five exits by value (IPO or trade sale) were Healthcare and Life Sciences companies focused on the treatment of cancer (Ipsogen, U3 Pharma and PIramed). It is likely that there will be continuing opportunities for these types of companies (and indeed all drug development companies) to exit in the future as there will always be a market for cancer/disease treatment irrespective of the economic climate.

Based on this evidence, the Healthcare and Life Sciences sector appears to be quite robust, and could be amongst the best placed sectors to weather economic downturn. It will be interesting to see whether the most lucrative exits by value in the next quarter are also similarly biased towards Healthcare and Life Sciences companies.