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Up Rounds and Valuations Rise at a Record Pace in Silicon Valley

August 11, 2014

Fenwick & West corporate partner Barry Kramer was quoted in an article by Reuters PE Hub about the findings of the firm’s 2Q 2014 Silicon Valley Venture Survey, co-authored by Kramer and corporate partner Michael Patrick. 

Valuation results were the strongest ever measured by the survey. The Fenwick & West Venture Capital Barometer™ showed an average price increase of 113 percent, the highest amount since the firm began calculating this statistic in 1Q 2004. In addition, up rounds exceeded down rounds 80 percent to 6 percent, a 74-point difference that was the largest since the survey began calculating up/down rounds in 1Q 2002.

The Reuters article described the survey results as demonstrative of the confidence that game-changing companies are inspiring in the Silicon Valley venture capital community.

“I think we’re seeing some large bets on a select group of companies that investors feel have a reasonable chance to really disrupt their industries, or create new ones,” said Kramer. “It’s ‘winner take all.’”

But Kramer doesn’t view the record increases as an indicator of a tech investment bubble, because a bubble would require a much higher volume of individual venture financings, initial public offerings, and merger and acquisition deals.

“I don’t believe that we are seeing ‘irrational exuberance,’” Kramer said.

Other findings of the survey, which examined the financing rounds for 174 Silicon Valley technology and life sciences companies during 2Q 2014, include:

  • The median price increase of financings in 2Q 2014 was 75 percent, the highest amount since the firm began calculating medians in 2010.
  • The internet/digital media, software and hardware industries all had very strong results, with internet/digital media having the highest Barometer (169 percent) and median (99 percent) increases, software continuing not only to have strong valuations but also increasing its percentage of post Series A financings to 48 percent, and the hardware industry registering a very strong second-best Barometer result of 132 percent. The life science industry also posted solid results, while cleantech lagged other industries but still had reasonable results.

The full article is available through the Reuters PE Hub website.