Trends in Terms of Venture Financings in Silicon Valley
Trends in Terms of Venture Financings in Silicon Valley - Q2 2009
(Abhishek Uppal)
Venture financings for 89 companies headquartered in the Silicon Valley that raised money in the second quarter of 2009.
Overview
Down rounds exceeded up rounds 46% to 32%, with 22% flat. This was slightly better than 1Q09 when down rounds outpaced up rounds 46% to 25%, with 29% flat. The past two quarters are the only quarters since 4Q03 in which down rounds have exceeded up rounds.
There is an average price decrease of 6% for companies receiving venture capital in 2Q09 compared to such companies' prior financing round. This was a slight decline from 1Q09. The past two quarters are the only quarters in which there has been a price decrease since 1Q04.
Other U.S. venture industry-related results for the quarter include the following:
Dow Jones VentureSource reported that the amount invested by venture capitalists in the U.S. in 2Q09 was approximately $5.3 billion in 595 deals, an increase from the $4.0 billion invested in 680 deals in 1Q09, but a significant decline from the $8.3 billion invested in 726 deals in 2Q08.
The Money Tree' Report by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters also reported an increase in venture funding in 2Q09 compared to 1Q09, although at lower overall levels, reporting $3.7 billion of investment in 612 deals in 2Q09 compared to $3.2 billion in 603 deals in 1Q09.
The health care industry received 42% of 2Q09 investment, and information technology attracted 37%, the first time on record that quarterly investment in health care exceeded investment in information technology.
Fundraising by U.S. venture capitalists was $1.7 billion in 2Q09, which was the lowest amount raised in a quarter since the first quarter of 2003.
There were 67 acquisitions of venture-backed companies in the U.S. in 2Q09, for a total of $2.6 billion, a decline from 70 transactions totalling $3.4 billion in 1Q09 and a significant decline from the 89 transactions totalling $6.5 billion in 2Q08. This was the lowest dollar volume of acquisition transactions since 1999.
There were three IPOs of venture-backed companies in the U.S. in 2Q09.
In light of the currently reduced liquidity of venture investments, 75% of venture capital funds surveyed by Ernst & Young indicated in 1Q09 that they would be increasing their reserves for follow-on investments in current portfolio companies. This increase in reserves for current investments could make less funds available for new investments.
The reduced liquidity for venture investments also appears to have resulted in increased interest in secondary venture funds, which purchase limited partnership interests in venture funds from limited partners who want liquidity for their investment, and private equity exchanges and marketplaces, which provide company insiders with the ability to sell stock in non-public companies.
The Silicon Valley Venture Capitalists Confidence Index', produced by Professor Mark Cannice at the University of San Francisco, reports the confidence level of Silicon Valley venture capitalists at 3.37 on a 5 point scale. This was an increase from last quarter's reading of 3.03 and the second consecutive quarterly increase in the index.
Nasdaq was up 22% in 2Q09, and is up 8% in 3Q09 through August 5, 2009.
