"The improvement in financing terms for a second straight quarter in Q3, although less pronounced than Q2, seems to indicate that the venture financing environment is exiting the post-Internet bubble doldrums and is returning to a more stable and optimistic outlook" said Barry J. Kramer, co-author of the survey.

Fenwick & West LLP analyzed the terms of venture financings for 85 technology companies headquartered in Silicon Valley that reported raising capital in the second quarter of 2003. The Survey, which focuses on trends in venture financing terms, complements economic data presented in the Ernst & Young/Venture One U.S. Venture Capital Survey and the PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association /Money Tree Survey.

"On the valuation front, we found little change from Q2, with the number of down rounds, flat rounds and up rounds in Q3 tracking close to the results for Q2," said Kramer. "However, the use of tougher deal terms such as multiple liquidation preferences, ratchet antidilution and pay-to-play provisions decreased noticeable during the quarter."

"It appears that as more companies work through their legacy capitalization issues there is less need for tough terms such as multiple liquidation preferences," said Michael J. Patrick, Survey co-author. "The reduced use of ratchet antidilution and pay-to-play provisions seems to indicate an increased optimism on the part of venture capitalists as to the ability of the companies they fund to obtain future financing on reasonable terms."

"There are reasons to be encouraged," said Kramer. "The volume of venture investment held steady in Q3, financing terms and M&A valuations improved modestly, and the number of IPOs and companies in registration is increasing. Investor confidence and appears to be slowly returning. That said, we are still in a situation where there were more down rounds than uprounds in the current quarter."

The latest Fenwick & West Survey includes the following findings:

  • The increase in the percentage of Series A financings, which began in 2Q03, continued into Q303.
  • The percentage of Series B financings also increased, with a corresponding decrease in Series C financings.
  • The direction of price changes in Q303 is similar to 2Q03, although down rounds continue to outpace up rounds.
  • The lowest use of multiple liquidation preferences in any quarter since 1Q02 is particularly notable.
  • The trend toward reduced use of ratchet antidilution protection continued in 3Q03.
  • The use of pay-to-play provisions also decreased in 3Q03.

For complete survey results, please visit

About the Fenwick & West Survey

The Fenwick & West Venture Capital Survey, co-authored by Barry J. Kramer and Michael J. Patrick, offers a unique view of the venture capital market in the Silicon Valley/San Francisco Bay Area by providing insight to the changes in venture capital terms. About Fenwick & West LLP Established in 1972, Fenwick & West LLP is one of the nation's premier law firms providing comprehensive legal services to national and international high technology and biotechnology clients, particularly in the areas of venture capital and other corporate finance, joint ventures, M&A and strategic relationships, intellectual property, litigation and dispute resolution, taxation, antitrust and employment and labor law. The only law firm included in Fortune's 1999-2002 list of the "100 Best Companies to Work For," Fenwick & West has offices in Mountain View and San Francisco, California. Fenwick & West's Website is found at


Barry J. Kramer
Fenwick & West LLP
Phone: 650.335.7278

Michael J. Patrick
Fenwick & West LLP
Phone: 650.335.7273

Richard Wood
Sand Hill Partners for Fenwick & West
Phone: 650.631.0123