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Posts Tagged ‘Silicon Valley Venture Capital Survey’

Silicon Valley Venture Capital Survey – First Quarter 2017

Click here for the full survey.

Background

This report analyzes the valuations and terms of venture financings for 191 companies headquartered in the Silicon Valley that raised capital in the first quarter of 2017.

Overview of Results

Venture valuations improved slightly in Q1 2017 compared to the prior quarter, with valuation metrics now flat with their 13-year averages after falling from 2015 peaks. The hardware industry had the strongest valuation results in the first three months of 2017.

Valuations Stabilize
Venture valuations showed improvements in Q1 2017 compared to Q4 2016, and valuation metrics are now generally flat with their 13-year averages after having fallen from all-time highs in mid-2015.

Hardware Sector Stands Out
The hardware industry recorded the strongest valuation results in Q1 2017, with the Fenwick & West Venture Capital Barometer™ showing an average price increase of 81% in Q1 2017, up from 50% in Q4 2016.

Valuations Improved for Later Stage Investments
The Barometer showed an average price increase for Series D and E+ rounds of 45% and 60% in Q1 2017, an increase from the 16% and -1% recorded in Q4 2016.

Investor-Favorable Deal Terms Increase
The use of investor-favorable deal terms, including multiple liquidation preferences, participation rights and cumulative dividends, increased in Q1 2017.

Download complete results of the survey with related discussion.

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Fenwick & West -Silicon Valley Venture Capital Survey – Third Quarter 2016

Background

We analyzed the terms of 149 venture financings closed in the third quarter of 2016 by companies headquartered in Silicon Valley.

Overview of Results

The weakening in venture valuations that began in the second half of 2015 continued in 3Q16, with two of our three valuation metrics declining. Overall the valuation metrics have returned to their 12 year averages after a very strong 2014-2015.

  • Up rounds exceeded down rounds in 3Q16, 71% to 14%, with 15% flat. This was a decline from 2Q16 when up rounds exceeded down rounds 74% to 13%, with 13% flat. This was the fourth straight quarter in which the number of up rounds declined and the lowest percentage of quarterly up rounds since 2Q13.
  • The average price increase of financings in 3Q16 compared to the prior financing round (the “Barometer”) was 52%, an increase from the 40% recorded in 2Q16. This increase was primarily due to two (life science) companies that closed financings with price increases five or more times their prior round. There were no such financings in 2Q16.
  • The median price increase of financings in 2Q16 compared to the company’s prior financing was 31%. This was a decline from the 36% recorded in 1Q16, the fourth straight quarterly decline and the lowest median increase since 4Q13. The 12 year average median increase is 28%.
  • The median price increase of financings in 3Q16 compared to the prior financing round was 27%, a decline from the 31% recorded in 2Q16. This was the fifth straight quarterly decline and the lowest median price increase since 4Q13.
  • The strongest industry was “Other”, which consists primarily of venture backed food and personal care/fashion companies. Although software was the next strongest industry, its average price increase was the lowest since 3Q10.

Click here for the full survey.

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Background—We analyzed the terms of venture financings for 118 companies headquartered in Silicon Valley that reported raising money in the first quarter of 2013.

Overview of Fenwick & West Results

Although a healthy 68% of Silicon Valley financings in 1Q13 were up rounds, both the average and median percentage change in share price declined noticeably from 4Q12. In short, the up rounds were “up” by less. For example, 43% of up rounds in 4Q12 were up by more than 100%, while only 23% of up rounds in 1Q13 were up by more than 100%. Here are the more detailed results:

  • Up rounds exceeded down rounds in 1Q13, 68% to 11%, with 21% of rounds flat. This was a slight decline from 4Q12 when up rounds outpaced down rounds 71% to 8%, with 21% of rounds flat.
  • The Fenwick & West Venture Capital Barometer™ showed an average price increase of 57% in 1Q13, a healthy result but a decline from the 85% recorded in 4Q12.
  • The median price increase of financings in 1Q13 was 14%, a significant decline from the 41% recorded in 4Q12.
  • The results by industry are set forth below. In general the internet/digital media and software industries lead, with hardware and cleantech following, and life science trailing significantly.

Overview of Other Industry Data

Third party reports on the first quarter of 2013 showed weakness in the venture environment.

  • The amount of venture investment was the lowest quarterly amount since 3Q10.
  • The number of IPOs was the second lowest quarterly amount since 4Q09.
  • The number of venture-backed companies acquired was the lowest since 2Q09, and the amount paid in acquisitions was the lowest amount since at least 4Q09.
  • Although the dollar amount of VC fundraising was up from 4Q12, the number of funds raising money was the lowest since 3Q03.

There were certainly positive signs as well, with VC sentiment improving, angel investing strong, Nasdaq up and, as mentioned above, venture valuations reasonably healthy, but the overall venture environment is currently tough.

    • Venture Capital InvestmentDow Jones VentureSource (“VentureSource”) reported that venture capitalists (including corporation affiliated venture groups) invested $6.4 billion in 752 financings in the U.S. in 1Q13, a 3% decline in dollars but a 3% increase in deals from the $6.6 billion invested in 733 financings in 4Q12 (as reported in January 2013). This was the lowest dollar amount invested since 3Q10.

The PWC/NVCA MoneyTree™ Report based on data from Thomson Reuters (the “Money Tree Report”) reported $5.9 billion invested in 863 deals in 1Q13, an 8% decline in dollars and an 11% decline in deals from the $6.4 billion invested in 968 deals in 4Q12 (as reported in January 2013).

The MoneyTree Report also reported that despite the overall investment decline, investment in software companies was up 8% to $2.3 billion in 1Q13, while investment in internet companies, life science and cleantech all declined. It also reported that venture capital investment in first time financings was down 20% in 1Q13, with investment in first time life science financings falling to the lowest amount since 3Q96.

    • IPO ActivityDow Jones reported that 9 U.S. venture backed companies went public in 1Q13 and raised $643 million, compared to 8 IPOs raising $1.2 billion in 4Q12.

Similarly, Thomson Reuters and the NVCA (“Thomson/NVCA”) reported 8 IPOs raising $672 million in 1Q13, which was a 52% decline in the amount raised and a flat number of deals from 4Q12.

This was the second lowest number of IPOs in a quarter since 4Q09. Six of the IPOs were IT and all were for U.S. based companies.

    • Merger and Acquisitions ActivityDow Jones reported that acquisitions (including buyouts) of U.S. venture backed companies totaled $4.9 billion in 94 deals in 1Q13, a 47% decline in dollars and a 17% decline in deals from 4Q12 (as reported in January 2013).

Similarly Thomson/NVCA reported only 77 acquisitions in 1Q13, a 19% decline from the 95 reported in 4Q12 (as reported in January 2013). This was the lowest quarterly number of acquisitions since 2Q09.

    • Venture Capital FundraisingThomson/NVCA reported that 35 U.S. venture capital funds raised $4.1 billion in 1Q13, a 17% decline in the number of funds but a 25% increase in dollars raised compared to the 42 funds that raised $3.3 billion in 4Q12 (as reported in January 2013).

This was the lowest number of funds raising money since 3Q03, and the five new funds that raised money was the lowest number since 4Q06. Over half of the total amount raised ($2.2 billion) was raised by just four funds.

Similarly, Dow Jones reported $4.2 billion raised in 1Q13, the lowest first quarter total since 2009.

More money was invested in venture backed companies than was raised by venture capitalists for the fifth year in a row. Although 2012 data was incomplete, the excess aggregated $22 billion during the 2008-11 time frame, and while individuals and corporate investment likely made up part of the difference, it was unlikely to have made up a significant amount. (Venture Capital Journal, JoAnne Glasner, January 14, 2013).

It also appears that more hedge funds and private equity investors are doing later stage “venture” deals, which provides additional capital, but also creates more competition for venture capitalists (VentureWire, Shira Ovide and Pui-Wing Tam, March 7, 2013). The interest of these alternative investors is likely driven by the increased time to IPO, and increased amount being raised prior to IPO, by some of the most promising venture-backed companies. For example, the median time from initial equity to IPO increased to 9.4 years in 1Q13, and the median amount raised increased to $105 million, both the highest amounts in at least eight years (VentureSource).

  • Angels and AcceleratorsThree of the six largest venture capital investors in 1Q13 (by number of deals) were seed focused funds (500 Startups, Y Combinator, First Round Capital) (VentureSource). For a discussion of trends in seed financing see our 2012 Seed Survey at www.fenwick.com/seedsurvey.
  • Crowd FundingCrowd funding is growing substantially, despite regulatory delays in implementing some of the related provisions of the JOBS Act. Massolution reports that $1.6 billion was raised in North America by crowd funding in 2012, up 81% from 2011. And the recent partnership between AngelList and Second Market (described below) bears watching. There are even indications that seed funds might use crowd funding to raise money for their funds (Venture Wire, Chernova and Kolodny, April 10, 2013).
  • Secondary MarketsAlthough the Facebook IPO put a significant dent in the volume of trading on secondary market exchanges, the industry has been active.Nasdaq and SharesPost have recently announced a joint venture, the Nasdaq Private Market, to facilitate the buying and selling of private company shares, and to provide liquidity to early investors, founders and employees.And AngelList and Second Market have partnered to facilitate investing in early stage companies, by allowing investors to pool their investment through Second Market, so that they can each invest relatively small amounts of money into companies listed on AngelList.
  • Venture Capital ReturnCambridge Associates reported that the value of its venture capital index increased by 1.15% in 4Q12 (1Q13 information has not been publicly released) compared to -3.10% for Nasdaq. For longer time frames, the venture capital index surpassed Nasdaq for the 3 and 5 year period, and 15 years and longer, but trailed for the 1 and 10 year periods.
  • Venture Capital SentimentThe Silicon Valley Venture Capitalists Confidence Index® by Professor Mark Cannice at the University of San Francisco reported that the confidence level of Silicon Valley venture capitalists was 3.73 on a 5 point scale in 1Q13, an increase from 3.63 in 4Q12 and the third consecutive quarterly increase in the index. Reasons given for the increase were a stabilizing macro environment, continued easy money, a reduction in “frothiness” in internet/digital media, and the growth of cloud based, web centric software innovations.
  • NasdaqNasdaq increased 5.7% in 1Q13, and has increased 5.2% in 2Q13 through May 13, 2013.

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