Fenwick & West's Third Quarter 2008 Silicon Valley Venture Capital Survey Reveals Continued Increase

Impact of Broader Financial Market Distress that Began Late in the Quarter is Evident

November 25, 2008 (Mountain View, CA) – Fenwick & West LLP, one of the nation's premier law firms providing comprehensive legal services to technology and life science clients, today announced results of its Third Quarter 2008 Silicon Valley Venture Capital Survey.

The survey analyzed the valuations and terms of venture financings for 101 technology and life science companies headquartered in the greater Silicon Valley/San Francisco Bay Area which reported raising capital in the third quarter of 2008.

"Companies raising venture capital in the third quarter received somewhat higher valuations than in their prior financing round," said Barry Kramer, partner in the firm and co-author of the survey. "However, the results are far less positive when we divide third quarter results into July and August, when the stock market was still strong, and September, when significant stock market weakness became evident."

In discussing the survey results, Kramer noted that Nasdaq was up 3% in July and August, and that while it fell 11% in September, Nasdaq was only down a net of 8% for the third quarter on the whole. "Such decline pales in comparison to the 33% drop in Nasdaq in October and November to date," said Kramer. "The effect of the drop in October and November on venture activity will be reported when our fourth quarter survey results are released in early 2009."

The Fenwick & West Venture Capital Barometer™—which measures the change in share price of Bay Area companies funded during the quarter compared with the share price of their previous financing round—showed a 55% average price increase during the quarter.

"The amount of the increase is generally flat with the amount of increase we have seen over the past three quarters," said Michael Patrick, survey co-author and also a partner in the firm. "However, when third quarter results are analyzed by month, the Fenwick & West Venture Capital Barometer™ showed a 67% increase in July and August and only a 19% increase in September."

"Additionally, up rounds exceeded down rounds for the 19th consecutive quarter, with up rounds exceeding down rounds 73% to 12%, with 15% flat," said Patrick. "Yet up rounds were only 64% in September, which was the lowest percentage of up rounds since the third quarter of 2005."

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.

As reported by Dow Jones VentureSource, aggregate venture investment in the U.S. during the third quarter of 2008 was $7.4 billion in 583 transactions, compared to $7.5 billion invested in 660 transactions in the second quarter of 2008 and $7.9 billion invested in 673 transactions in the third quarter of 2007.

"Perhaps more importantly," said Kramer, "Dow Jones VentureSource also reported that acquisitions of venture backed companies in the third quarter continued to decline noticeably, with 66 transactions totaling $4.4 billion in the third quarter, compared to 80 transactions totaling $6.1 billion in the second quarter. Acquisition activity in the third quarter was the lowest since 2003."

Kramer then continued, "The current venture environment is very difficult and we expect valuations to decrease and terms to become tougher in the fourth quarter."

Complete survey results and discussion are posted on Fenwick & West's website at www.fe​

About the Survey

The Fenwick & West Quarterly Venture Capital Survey, launched by law firm partners Barry J. Kramer and Michael J. Patrick in 2002, offers a unique view of the venture capital market in the Silicon Valley/San Francisco Bay Area 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.

About Fenwick & West

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.


Barry J. Kramer
Fenwick & West LLP

Michael J. Patrick
Fenwick & West LLP

Richard Wood
Sand Hill Partners (for Fenwick & West LLP)