Background
Fenwick published its quarterly survey of venture financings and to sum it up, valuation results improved in Q4 2019. Fenwick’s Q4 2019 survey indicates strong year in the U.S. venture environment, although deal activity, both in terms of deal volume and aggregate amount of capital invested, trended downward throughout the year. The survey analyzed the terms of 188 venture financings closed in Q3 2019 in Silicon Valley and found the following:
Up rounds exceeded down rounds 84% to 5%, with 11% flat in Q4 2019, an increase from Q3 2019 when up rounds exceeded down rounds 81% to 7%, with 12% flat.
According to The Fenwick & West Venture Capital Barometer, the average price increase in Q4 2019 was 142% — an increase from the 88% recorded in the Q3 2019 and the highest average price increase in a quarter since 2004. The median price increase of financings rose sharply from 54% in Q3 2019 to 76% in Q4 2019.
In a reversal of the Q2 2019 and Q3 2019, Series D financing rounds recorded considerably stronger valuation results compared to the prior quarter. Series B and E financing rounds were also stronger compared to Q3 2019.
The software and internet/digital media industries recorded the strongest valuation results in Q4 2019, and the valuation results of both industries were marked stronger compared to the Q3 2019. The hardware industry recorded more moderate improvements in valuation results compared to the prior quarter, while the valuation results for the life sciences industry in Q4 2019 lagged those for the other industries.
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!
Fenwick’s survey (Silicon Valley Venture Capital Survey – Third Quarter 2019) can be found here: https://www.fenwick.com/insights/publications/silicon-valley-venture-capital-survey-fourth-quarter-2019
