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Fenwick & West’s Silicon Valley Venture Capital Survey Reveals Strong Valuations in Third Quarter of 2013

Up Rounds Exceeded Down Rounds by Largest Amount Since Third Quarter of 2007; Software Industry Especially Strong

November 20, 2013 (Mountain View, CA) – Fenwick & West, one of the nation’s premier law firms providing comprehensive legal services to high technology and life science clients, today announced the results of its Third Quarter 2013 Silicon Valley Venture Capital Survey.

The survey analyzed the valuations and terms of venture financings for 128 technology and life science companies headquartered in the Silicon Valley that raised capital in the third quarter of 2013.

“During the third quarter of 2013, up rounds exceeded down rounds 73% to 8%, with 19% flat.  This was a significant increase from the second quarter of 2013, when up rounds exceeded down rounds 64% to 22%, with 14% flat, and the largest amount by which up rounds exceeded down rounds since the third quarter of 2007,” said Barry Kramer, partner in the Corporate Group of Fenwick & West and co-author of the survey.

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™ – which measures the percentage change in share price of companies funded during the quarter compared with the share price of their previous financing round – showed a 65% average price increase for the quarter, a slight increase from the 62% reported in the second quarter of 2013.  However, the median price increase of those financings was 43%, a significant increase from the 19% recorded in the second quarter, and the largest amount since the fourth quarter of 2011. 

“Not only were the valuation results strong in the third quarter of 2013, but the legal terms were also increasingly friendly to entrepreneurs, with only 27% of deals including a participating liquidation preference, the lowest amount since we began the survey in 2002,” said Kramer.

“The best performing industries in the quarter from a valuation perspective were internet/digital media and software, which had median price increases of 54% and 46%, respectively, while hardware, life sciences and cleantech all were flat.  Additionally 53% of the financings in our survey were in the software industry, the highest amount since we began tracking information by industry in 2010,” added

Michael Patrick, also a partner in the Corporate Group of Fenwick & West and co-author of the survey.

“At the big picture level, it was a strong quarter for the venture environment, with venture investment, IPOs, M&A and fundraising in the third quarter all exceeding second quarter results,” added Patrick.

Complete results of the survey with related discussion are posted on Fenwick & West’s website at www.fenwick.com/vcsurvey.

About the Survey
The Fenwick & West Quarterly Venture Capital Survey, co-authored by law firm partners Barry J. Kramer and Michael J. Patrick, has been published for over 11 years and 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 by Dow Jones VentureSource and the MoneyTree™ Report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters.

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.