Fenwick published its quarterly survey of venture financings and to sum it up, valuation results remained strong in Q3 2019 but, aside from a spike in the average price increase in the Q3 2019, valuations have largely plateaued in 2019. Fenwick’s Q3 2019 survey indicates that the United States venture environment has been robust through the first three quarters of 2019, but has retreated from the peak levels recorded in 2018. The survey analyzed the terms of 189 venture financings closed in the Q3 2019 in Silicon Valley and found the following:
Up rounds exceeded down rounds 81% to 7%, with 12% flat in Q3 2019, a decline from Q2 2019 when up rounds exceeded down rounds 86% to 6%, with 8% flat.
According to The Fenwick & West Venture Capital Barometer, the average price increase in Q3 2019 was 88%, an increase from the 77% recorded in the Q2 2019, and the highest average price increase since Q3 2015.
Similar to the Q3 2019, valuation results for Series B and C financings were stronger compared to the previous quarter, while valuation results for Series D and E financing rounds weakened further.
The software and internet/digital media industries both recorded stronger valuation results in Q3 2019 compared to the prior quarter, and the hardware industry recorded a considerably higher average price increase in Q3 2019 compared to Q2 2019. Meanwhile, the valuation results for the life sciences industry in Q3 2019 lagged those for the other industries and declined compared to Q2 2019.
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.
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Fenwick’s survey (Silicon Valley Venture Capital Survey – Third Quarter 2019) can be found here: