Mountain View, CA (October 26, 2017) – Fenwick & West today released a first look at results of its Third Quarter 2017 Silicon Valley Venture Capital Survey, which analyzed the terms of 183 venture financings that closed in the third quarter of 2017 by companies headquartered in Silicon Valley.
Valuation results substantially increased in Q3 2017 following the modest increases seen in Q1 and Q2 2017. While series B, C and D rounds in Q3 enjoyed larger average valuation increases compared to the prior quarter, later stage Series E+ rounds were up only 19% in Q3 compared to a far greater average increase of 55% in Q2. The life sciences industry notably recorded the strongest valuation results in Q3 2017, in contrast to Q2 when its valuation metrics lagged behind other industries.
“VC investment activity in Silicon Valley improved significantly the past quarter, and valuation metrics are the highest since mid-2015,” said Cindy Hess, co-chair of Fenwick’s startup and venture capital practice and co-author of the survey. “It’s not clear whether the enthusiasm demonstrated among private investors will translate into the investor enthusiasm needed to open public markets, but it does show investors are willing to invest in specific industries, such as Life Sciences.”
“The average price increase for later stage Series E+ rounds was 19% in Q3 2017, which was significantly lower than the prior two quarters,” said Mark Leahy, co-chair of Fenwick’s startup and venture capital practice and co-author of the survey. “Nonetheless, later stage companies have been able to raise significant capital from private markets at high valuations, which have pushed out their exit timelines.”
Valuations Well Above Historical Averages
Overall, valuation metrics are well above their historical averages, although still off from the highs recorded in mid-2015.
Up rounds exceeded down rounds 79% to 10%, with 11% flat. This was an increase from Q2 2017, when up rounds exceeded down rounds 77% to 13%, with 10% flat. This was the highest percentage of up rounds and the lowest percentage of down rounds since Q1 2016.
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.
Valuation Results Up but Less So for Late-Stage Companies
The Fenwick & West Venture Capital Barometer™ showed an average price increase in Q3 2017 of 80%, an increase from 64% recorded in Q2 and the highest average price increase recorded since Q3 2015.
Series B, C and D rounds all recorded stronger valuation results compared to the prior quarter while the average price increase for Series E+ rounds declined considerably from 55% in Q2 to 19% in Q3.
Life Sciences Scores Strongest Valuation Results
In contrast to the prior quarter when its valuation metrics lagged those of the other industries, the life sciences industry recorded the strongest valuation results in Q3 2017.
The hardware and software industries also recorded strong valuation metrics in Q3, although the valuation results for the software industry were modestly weaker than the elevated results recorded by the industry in the prior quarter.
The internet/digital media industry recorded a lower average price increase compared to the prior quarter; however, the median price increase was significantly higher.
Our “First Look” report covering top line trends for venture capital financings of Silicon Valley companies in Q3 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 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.
About Fenwick & West
Fenwick & West LLP provides comprehensive legal services to ground-breaking 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 on issues 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.