Fenwick & West today released a first look at results of its First Quarter 2018 Silicon Valley Venture Capital Survey, which analyzed the terms of 200 venture financings that closed in the first quarter of 2018 by companies headquartered in Silicon Valley.
Key findings include:
“Series D financings continued to record the weakest valuation results, but improved from the previous quarter,” said Mark Leahy, co-chair of Fenwick’s startup and venture capital practice and co-author of the survey. “The valuation results for Series E+ rounds also improved from Q4 2017, but Series B and C declined moderately. The first quarter seems to continue the trend we saw last year where late stage rounds were strong.”
Valuation Results Remain Strong but Generally Flat
Valuation results were generally flat in Q1 2018 compared to the prior quarter. While valuation metrics are well above historical averages, they have plateaued since Q3 2017.
Up rounds exceeded down rounds 75% to 15%, with 10% flat in Q1 2018—an increase from Q4 2017, when up rounds exceeded down rounds 70% to 19%, with 11% 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.
The Fenwick & West Venture Capital Barometer™ showed an average price increase in Q1 2018 of 74%, which was flat compared to the prior quarter. The average price increase had previously peaked in Q3 2017 after five consecutive quarters of increases before decreasing moderately in Q4 2017.
The median price increase of financings in Q1 2018 was 41%, a slight decrease from the 42% recorded in Q4 2017, and the second consecutive quarter of declines following four quarters of increases.
Internet/Digital Media Scores Highest Valuation Results, Hardware Records Greatest Valuations Improvement
Similar to the prior quarter, the internet/digital media industry recorded the strongest valuation results in Q1 2018 compared to the other industries, with an average price increase of 101% and a median price increase of 59%. However, the valuation results for the internet/digital media industry were moderately weaker compared to the prior quarter.
In comparison, the software, hardware and life sciences industries all recorded stronger valuation results in Q1 2018 compared to the prior quarter. The hardware industry, in particular, recorded the second strongest valuation results in Q1 and the greatest improvement in valuation results compared to the prior quarter, with the average price increase increasing from 40% in Q4 2017 to 97% in Q1 2018 and the median price increase increasing from 13% in Q4 2017 to 52% in Q1 2018.
About the Survey
The Fenwick & West Venture Capital Survey has been published quarterly for more than 15 years and offers a unique view of the venture capital market in Silicon Valley by providing insight into changes in valuations and terms. Focusing on trends in venture financing and valuations, this Fenwick & West survey complements the economic data presented by Dow Jones VentureSource, PWC/CB Insights MoneyTree™ Report and PitchBook-NVCA Venture Monitor.
Our “First Look” report covering top-line trends for venture capital financings of Silicon Valley companies in Q1 is available on Fenwick & West’s website. This initial report will be followed in several weeks with a more in-depth “Full Analysis” that will provide a broader perspective and include coverage of venture capital financings in other geographies drawing on data from a variety of industry reports.
About Fenwick & West
Fenwick & West LLP provides comprehensive legal services to leading technology and life sciences companies — at every stage of their lifecycle — and the investors that partner with them. We craft innovative, cost-effective and practical solutions in areas ranging from venture capital, public offerings, joint ventures, M&A and strategic relationships, to intellectual property, litigation and dispute resolution, taxation, antitrust and employment and labor law. For more than four decades, Fenwick has helped some of the world's most recognized companies become and remain market leaders. For more information, please visit fenwick.com.