United States: Silicon Valley Venture Capital Survey First Quarter 2019

Last Updated: June 20 2019
Article by Cynthia Clarfield Hess, Mark A. Leahy and Khang Tran

Background

We analyzed the terms of 185 venture financings closed in the first quarter of 2019 by companies headquartered in Silicon Valley. We found that valuation results continued to be strong, with the average price increase in Q1 slightly lower than in the prior quarter, though still substantially higher than the historical average. The internet/digital media software industry recorded the strongest valuation results.

Overview of Fenwick & West Results

Valuation results continued to be strong in the first quarter of 2019, but declined moderately from the three-year highs of the prior quarter.

  • Up rounds exceeded down rounds 81% to 11%, with 8% flat in Q1 2019, a moderate increase in the percentage of down rounds compared to the prior quarter when up rounds exceeded down rounds 81% to 8%, with 11% flat.
  • The Fenwick & West Venture Capital Barometer" showed an average price increase in Q1 2019 of 75%, a decline from the 85% recorded in the prior quarter, but still substantially higher than the historical average of 58%.
  • Despite the decline in the average price increase, the median price increase of financings rose from 52% in Q4 2018 to 56% in Q1 2019, the highest median price increase since Q2 2015
  • Moderately weaker valuation results compared to the prior quarter were recorded across each series of financing.
  • The internet/digital media software industry recorded the strongest valuation results in Q1 2019, with an average price increase of 102%, up from 68% in the prior quarter, and a median price increase of 96%, up from 56% in the prior quarter. The software industry had the next strongest valuation results in the quarter despite recording the greatest decline in average price increase compared to the prior quarter. The hardware and life sciences industry also recorded weaker valuation results in Q1 compared to the prior quarter.

Overview of Other Industry Data

The U.S. venture environment remained strong in the first quarter of 2019, but weakened compared to the elevated levels of the prior quarter. Deal activity in the quarter continued the downward trend observed over the past several years.

  • Both the pace of investments and the amount of capital invested declined from Q4 2018 to Q1 2019. Compared to the year-ago period, the pace of investments declined in Q1, but the amount of capital invested was up.
  • Later stage investments continued to represent the lowest deal share, but the highest share of the invested capital in Q1. Meanwhile, seed-stage investment deal allocation declined in Q1 to the lowest percentage since Q3 2010.
  • The internet sector continued to receive the greatest share of investments, followed by the healthcare sector and the mobile and telecommunications sector.
  • San Francisco (North Bay Area) again took in the largest share of investments in Q1 in terms of both deal volume and invested capital, followed by the New York Metro area. The New England area moved ahead of Silicon Valley (South Bay Area) in Q1 in terms of deal share, but the region's invested capital allocation placed the region fourth behind Silicon Valley (South Bay Area) by that measure.
  • U.S. venture-backed IPO activity in Q1 was down from the prior quarter with the lowest number of IPOs since Q3 2017, although the amount raised in IPOs was up compared to the prior quarter.
  • The number of acquisitions of U.S. venture-backed companies in Q1 was down from the prior quarter and represented the lowest M&A deal volume in a quarter since Q3 2017.
  • Venture capital fundraising cooled off from the record-breaking levels of 2018 to start the year

Venture Capital Investment

U.S. venture capital investment deal flow in Q1 2019 declined compared to both the prior quarter and the year-ago period. The total dollar value of the financings in Q1 also declined compared to the record levels of the prior quarter, but was higher compared to the year-ago period.

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