Venture Capital Survey Shows Valuations Weakening

 

Change-in-Price-Direction-1Q04-2Q16-3dbea45038f5819fb1c1a5d282d76df7MOUNTAIN VIEW –– Fenwick & West LLP, a leading law firm for high technology clients, has released the results of its Second Quarter 2016 Silicon Valley Venture Capital Survey.

The survey analyzed the valuations and terms of venture financings for 195 companies headquartered in the Silicon Valley that raised capital in the second quarter of 2016.

“During the second quarter of 2016, up rounds exceeded down rounds 74% to 13%, with 13% flat. This was a decrease from the first quarter of 2016 when up rounds exceeded down rounds 78% to 11%, with 11% flat,” said Barry Kramer, partner in the Corporate Group of Fenwick & West and author of the survey.

An up round is one in which the price per share at which a company sells its stock has increased since its prior financing round. Conversely, a down round is one in which the price per share has declined since a company’s prior financing round.

The average percentage change in the share price of companies funded during the quarter, compared with the share price of their previous financing round, showed a 40% price increase for the quarter, a decline from the 53% recorded in the first quarter of 2016 and the lowest amount since the third quarter of 2010. The median price increase of financings in the first quarter was 31%, a decline from the 36% recorded in the first quarter and the lowest amount since the fourth quarter of 2013.

The results for price change direction, average price change and median price change since the survey began calculating such statistics in 2004, are set forth below.

“This was the third quarter in a row of declines in the venture valuation metrics. Such metrics hit an all time (12-year) high in mid-2015, but have since fallen to be generally flat with the 12-year average for such metrics,” noted Kramer.

The survey also found a decrease in Series A and Series B fundings in the quarter. The percentage of financings that were either Series A2 or Series B financings was 44%, the lowest percentage since 2Q14.

Complete results of the survey with related discussion are posted on Fenwick & West’s website at www.fenwick.com/vcsurvey.