Background

We analyzed the terms of 180 venture financings closed in the third quarter of 2014 by companies headquartered in Silicon Valley.

Overview of Fenwick & West Results

Valuation results continued strong in 3Q14, but declined from 2Q14, which was the strongest quarter in the 12-year history of our survey.

  • Up rounds exceeded down rounds 76% to 12%, with 12% flat, in 3Q14. This was a decline from 2Q14, when up rounds exceeded down rounds 80% to 6%, with 14% flat, but still a strong quarter.
  • The Fenwick & West Venture Capital Barometer" showed an average price increase in 3Q14 of 79%, a significant decline from the 113% registered in 2Q14, which was the strongest quarter on record, but a strong result nonetheless.
  • The median price increase of financings in 3Q14 was 43%, again a decline from the 75% registered in 2Q14, but still solid.
  • The software industry led all industries with 50% of all deals, and the highest percentage of up rounds, while the internet/digital media industry had the highest Barometer and median results. The hardware industry was also strong, but life sciences trailed noticeably, as did cleantech.
  • Late stage financings showed less strength than other stages, with both Series D and Series E/later stage financings showing larger increases in down rounds, decreases in Barometer results and increases in use of senior liquidation preference. These results bear watching next quarter, to see if this was a one quarter occurrence, or a trend indicating that late stage financings are weakening.

Overview of Other Industry Data

Consistent with our results, third party data on the overall U.S. venture industry showed that the third quarter of 2014 was a strong quarter, but not as strong as the second quarter of 2014.

  • Venture capital investment in 3Q14 declined significantly from a very strong 2Q14, but was still strong, as it was the highest quarterly investment amount since 3Q01, except for 2Q14.
  • Venture backed IPOs declined slightly in the third quarter compared to 2Q14, but there have been more IPOs in the first three quarters of 2014 than any full year since 2000. However tech has not been strong, as 71% of 2014 IPOs have been in the life science industry.
  • Acquisitions in the third quarter were very strong, and the amount of M&A proceeds was the highest quarterly amount since 3Q00.
  • Venture fundraising declined in the third quarter compared to 2Q14, but was still healthy, and 2014 is on track to be the best year for venture fundraising since 2001.
  • Venture capitalist confidence declined from 2Q14 to 3Q14 for the first time in two years, although the overall level was healthy.
  • An analysis by VC Experts on the terms of Silicon Valley financings (based on our data) compared to the terms of venture financings in the rest of the United States, found that Silicon Valley based companies are generally receiving more entrepreneur favorable terms than companies in the rest of the U.S.

Venture Capital Investment

U.S. venture capital investment in 3Q14 declined significantly from a very strong 2Q14, but was still healthy. A summary of results published by three leading providers of venture data is below.

To read this Survey in full, please click here.

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