Fenwick published its interim report on the venture capital environment in Silicon Valley in light of the COVID-19 pandemic and overall, the climate is strong. Fenwick’s October 2020 survey indicates that venture valuation metrics were strong and are now returning to pre-pandemic levels for the first time. The survey found the following:
The percentage of up-rounds in October was 79%, the highest since February 2020 and only slightly below the 2019 average of 83%. The percentage of down rounds was 4%, the lowest since December 2019.
The average share price increase was 101%, the highest since January 2020 and higher than the 2019 average of 93%.
Financing volume was strong as the number of Silicon Valley venture financings was stable in October 2020, with 65 financings, the same as that in September 2019 and the average for 2019.
Software and life sciences posted strong results with 15 life sciences financings in October 2020, compared to a monthly average of nine in 2019, while the internet/new media lagged, with only a 40% average per-share price increase, compared to 99% in September 2020 and a 122% average in 2019.
The software industry also experienced the highest valuations, with an average per-share price increase of 140%, compared to 88% in September 2020 and 101% in 2019, followed by Life sciences with a 74% average increase.
What does this all mean for values generally and 409A specifically? For companies that have recently raised money on higher valuations, we would expect that a reasonable application of the OPM Backsolve method will result in higher fair market value determinations.
Contact us today to learn how the venture capital financing market may impact the value of your company and the price at which you issue options!
Fewick’s survey (Silicon Valley Venture Capital Flash Report – October 2020) can be found here: https://www.fenwick.com/insights/publications/silicon-valley-venture-capital-flash-report-october-2020