Background
Fenwick published its quarterly survey of venture financings and to sum it up, valuations are definitely improving. Fenwick’s 2020 Q3 survey indicates that the private company financing market continues to generally favor companies. The survey analyzed the terms of 211 venture financings closed in the 2020 Q3 in Silicon Valley and found the following: Up rounds exceeded down rounds 77% to 12%, with 11% flat in Q3 2020, an increase from Q2 2020 when up rounds exceeded down rounds 71% to 15%, with 14% flat.
According to The Fenwick & West Venture Capital Barometer, the average price increase in Q3 2020 was 76%, a significant increase from 51% in Q2 2020, but still below the average price increase of 93% for financings in 2019.
Valuation results improved for all series of financings in Q3 2020, but continued to lag pre-pandemic levels. Series E and later financings, however, recorded the smallest gains in average price increase compared to Q2 2020, and the percentage of Series E and later financings that were down rounds also increased compared to the Q2 2020.
Valuations strengthened across all industries and in particular, the internet/digital media and software industries recorded the strongest valuation results in Q3 2020, while the hardware and life science industries recorded the greatest gains in valuation results compared to Q2 2020.
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 2020) can be found here:
