Posts Tagged ‘VC restructuring’

“Startup valuations are falling and venture capitalists are driving harder bargains, according to a survey by California law firm Fenwick & West.

Like the rest of the economy, the world of venture capital and startups is starting to feel more pain from the deepening global financial crisis. That’s the main takeaway from a new survey detailing trends in venture capital investments during the fourth quarter of 2008 by the California law firm Fenwick & West.

The survey, which analyzed the terms of venture deals for 128 companies headquartered in the San Francisco Bay Area, found that valuations are falling for startups and that venture capitalists are driving harder bargains. The silver lining: The fallout so far is not nearly as bad as it was during the dot-com bust, when hundreds of companies went under and stratospheric valuations came crashing down to earth.

Down Rounds on the Rise

Sure, there were some startups last quarter that secured a higher value on their latest investment round, such as online vacation rental site HomeAway. But, of the 128 companies that received financing, 33% of them experienced so-called down rounds, or an investment that placed a lower valuation on the company than it received in the previous round of investment. More ominous, the percentage of down rounds rose every month at year’s end, hitting 45% in December. “Each month things got worse in the fourth quarter,” says Barry Kramer, the Fenwick & West partner who runs the survey. The highest percentage of down rounds occurred in the first quarter of 2003, when 73% of the companies surveyed by Fenwick & West suffered down rounds.”

Read the full article by Spencer E. Ante here
Other comments on this piece can be found here: World Tech News, The Livermore report, Silobreaker,

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mk-au416_shutdo_ns_20090211185403WSJ reports: As Funding Dries Up, Fledgling Silicon Valley Firms Are Shutting Down; Fears of Chill on Innovation

“Many start-ups survived last year by slashing costs and deferring development projects. But as demand for their products continues to deteriorate and funding dries up, these young firms are now running out of lifelines. Many are calling it quits, recalling the dot-com bust earlier this decade.

Venture capitalists pulled back sharply in the fourth quarter as credit markets seized and stock markets collapsed. Venture capitalists invested $5.54 billion in U.S. start-ups in the fourth quarter, 27% less than the third quarter, according to data compiled by VentureSource.”

Another excellent take on the same theme is Stacey Higginbotham´s analysis at GigaOm:

“The crisis in the financial market is coming home to roost for startups of all kinds. Today’s Wall Street Journal has an article detailing the death or firesale of several startups in the last few weeks. It’s grim, but this is only the beginning for many venture-backed companies, as we reported back in October. Over the next few months, we’ll see continuing news of businesses giving up the ghost as their venture backers take a hard look at upcoming cash needs and decide to prune.

Venture capital is a cyclical business that follows the fate of the stock market, so it depends on where a startup is as the cycle turns from boom to bust. Unfortunately, many of these unlucky startups are getting crushed under the wheel as it rolls through the downturn. Right now is a good time to work on an idea, but a bad time to be selling things.

However, innovation won’t just stop.VCs are still making selective investments in early stage startups at newly reasonable valuations, hoping those deals are ripe by the time the economy reaches the next boom.”

Gerbsman Partners focuses on maximizing enterprise value for stakeholders and shareholders in under-performing, under-capitalized and under-valued companies and their Intellectual Property. In the past 60 months, Gerbsman Partners has been involved in maximizing value for 51 Technology, Life Science and Medical Device companies and their Intellectual Property and has restructured/terminated over $770 million of real estate executory contracts and equipment lease/sub-debt obligations. Since inception, Gerbsman Partners has been involved in over $2.2 billion of financings, restructurings and M&A transactions.

Gerbsman Partners has offices and strategic alliances in Boston, New York, Washington, DC, San Francisco, Europe and Israel.

For more information on Gerbsman Partners, please visit our website at www.gerbsmanpartners.com

By way of Stacey Higginbotham article at GigaOM. For the full WSJ article, please click here

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