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For Startups, Buyouts Are Better

Forget IPOs. Tougher disclosure laws, big companies with loads of cash, and risk-averse entrepreneurs have made acquisitions fashionable again.

When Dan Avida sold his four-year-old security company Decru in June for $272 million, he got a heck of a valuation. It beat the socks off what the stock market paid for the company he helped take public over a decade ago.

Those were more sober times. A company could expect Wall Street to put the value of a company at about three to four times revenue. Electronics for Imaging, Mr. Avida’s last startup, won a market capitalization of $205 million after its IPO. It closed $52 million in sales that year.

Today, a promising technology company in Silicon Valley can expect a warmer reception from acquirers than from public investors. When Network Appliance agreed to pay $272 million for Redwood City, California-based Decru in June, the startup had only booked $6 million in annual revenue. That’s 45 times revenue.

Full Story: http://www.redherring.com/Article.aspx?a=13860&hed=For+Startups%2c+Buyouts+Are+Better

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