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by Brenon Daly

After being frozen for more than six months, there were some signs of a thaw this week in the tech IPO market. Chinese game maker Changyou.com (NASDAQ:CYOU) enjoyed a strong debut on Thursday, and only inched down slightly in the following session. In addition, language software maker Rosetta Stone set the terms of its planned offering earlier in the week.

While the offerings are encouraging from a capital markets perspective, the same can’t be said for the VC community. The IPOs of Changyou.com and Rosetta Stone won’t mean a payoff for any of the Sand Hill Road crowd. (Changyou.com is a spinoff from online portal Sohu, while Rosetta Stone counts a pair of buyout shops as its majority owners.) Of course, VCs have long since given up on betting on IPOs to boost their returns. Most acknowledge that for every portfolio company that does make it onto the public market, nearly 10 startups will get snapped up in a trade sale.

Unfortunately, there’s bad news on the M&A front, as well. My colleague Thomas Rasmussen calculated that the median valuation in the sale of VC-backed companies in the first quarter of 2009 slumped to 2.1x trailing 12-month (TTM) sales, compared to 3.8x TTM sales during the same period last year. Granted, that multiple was about twice as rich as first-quarter sales of non-VC-backed companies. But we would be quick to add that the 2.1x TTM sales multiple essentially matches the level for non-VC-backed startups in the first quarter of 2008. For more on first-quarter valuations and overall deal flow, see our first-quarter M&A report.

Source: IPO Watch: Tough Exits for VCs Continue