Venture Capital Barometer Shows Largest Increase Since Survey Began
Up Rounds Outpace Down Rounds for Twelfth Consecutive Quarter
February 22, 2007 (Mountain View and San Francisco, CA) - Fenwick & West LLP today announced results of its Fourth Quarter 2006 Silicon Valley Venture Capital Survey.
The survey analyzed the valuations and terms of venture financings for 113 technology and life science companies headquartered in the Silicon Valley/San Francisco Bay Area that reported raising capital during the fourth quarter of 2006.
"The results showed a continuation of the strong positive trend in venture valuations," said Barry Kramer, partner in the firm and co-author of the survey. "Up rounds exceeded down rounds for the twelfth consecutive quarter," said Kramer. "During the quarter, up rounds outpaced down rounds 67% to 22%, with 11% of the rounds remaining flat."
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.
Fenwick & West's Venture Capital Barometer™—which measures the change in share price of Silicon Valley companies funded during the quarter compared with the share price of their previous financing round—was up 69% for the quarter.
"This was the largest increase since the survey began," said Kramer, "driven in significant part by nine 4Q06 financings in which the purchase price of the stock sold in the financing was at least three times higher than the prior round. Of these nine financings, most were Web 2.0 and related fields."
Michael Patrick, also a partner in the firm and survey co-author, said, "As reported by Dow Jones/VentureSource, aggregate venture investment in the U.S. during the quarter was $5.8 billion. Although this amount was approximately 15% less than the amounts invested in 3Q06 and 2Q06, it fell solidly within the $5-7 billion quarterly range seen since the end of 2003. Overall, the amount invested by venture capitalists in the U.S. in 2006 was up approximately 8% over 2005."
Patrick also noted that IPOs of venture backed companies improved noticeably in 4Q06, with 18 IPOs raising $1.2 billion in 4Q06. "2006 was the second best IPO year since 2000," he pointed out, "with 56 venture backed IPOs raising $3.7 billion."
Complete survey results are posted on Fenwick & West's Web site at www.fenwick.com/vctrends.htm.
The Fenwick & West Quarterly Venture Capital Survey, co-authored by law firm partners Barry J. Kramer and Michael J. Patrick, offers a unique view of the venture capital market in Silicon Valley by providing insight into the changes in venture capital valuations and terms. Focusing exclusively on trends in venture financing and valuations, the Fenwick & West Survey complements the economic data presented in the Dow Jones/VentureSource Survey and the MoneyTree™ Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.
Established in 1972, Fenwick & West LLP is one of the nation's premier law firms with extensive expertise in venture capital, public offerings and other corporate finance, joint ventures, M&A and strategic relationships, intellectual property, litigation and dispute resolution, taxation, antitrust and employment and labor law.
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