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2005: Smiles for Software Startups

This year could be a good one for software startups. M&A activity looks set to continue after a busy 2004, according to the latest research from VentureOne.

The study, which examines U.S. venture-backed companies, tracks funding and merger activity for firms in a number of areas, including the IT, bio-pharmaceutical, and healthcare industries.

VentureOnes survey identified a total of 376 M&A deals among venture-backed firms last year, with an aggregate total paid of $22.64 billion, the highest amount since 2000. In 2003, in comparison, 335 companies were merged or acquired with a total of $12.92 billion paid.

Of 2004's 376 deals, 246 were IT-related, raising a total of $13.97 billion, the largest amount since 2001. Software companies made up the overwhelming majority of these firms, with 134 involved in M&A deals.

Things are also looking up in the IPO arena. In 2004, 67 venture-backed U.S. companies completed IPOs, raising a total of $4.98 billion, the highest since 1998. Although healthcare and consumer-based IPOs still outnumber IT offerings, VentureOne research manager Matt Garlick believes the high-profile Google Inc. IPO signifies a change in the market (see Tracking Google's IT Booty).

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