Fenwick published its quarterly survey of venture financings and to sum it up, valuation results continued to be strong, with the average price increase in Q1 2019 slightly lower than in the Q4 2018, though still substantially higher than the historical average. Fenwick’s Q1 2019 survey indicates that internet/digital media software industry recorded the strongest valuation results. The survey analyzed the terms of 185 venture financings closed in the Q1 2019 in Silicon Valley and found the following:
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 Q4 2018 when up rounds exceeded down rounds 81% to 8%, with 11% flat.
According to The Fenwick & West Venture Capital Barometer, the average price increase in Q1 2019 was 75%, a decline from the 85% recorded in the Q4 2018, but still substantially higher than the historical average of 58%.
Moderately weaker valuation results compared to the Q4 2018 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 Q4 2018, and a median price increase of 96%, up from 56% in the Q4 2018. The software industry had the next strongest valuation results in the Q1 2019 despite recording the greatest decline in average price increase compared to the Q4 2018. The hardware and life sciences industry also recorded weaker valuation results in Q1 2019 compared to the Q4 2018.
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.
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Fenwick’s survey (Silicon Valley Venture Capital Survey – First Quarter 2018) can be found here:
