Buzz Archive:
Trends in Terms of Venture Financings In the San Francisco Bay Area (Q2 2007)

by Barry Kramer and Michael J. Patrick of Fenwick & West LLP, 9/20/2007

The strong positive trend in venture valuations continues--especially in the Bay area. In the 2nd quarter:

• Up rounds exceeded down rounds for the 14th quarter in a row (81% up vs. 11% down, with 8% flat). The ratio of up rounds to down rounds was tied with 1Q07 for the highest ratio since our survey began in 2002.

• The Fenwick & West Venture Capital Barometer™ showed a 74% average price increase for companies receiving venture capital in 2Q07 compared to such companies' previous financing round. This was the second largest increase since our survey began (1Q07 had a 75% increase). This increase was driven in part by 12 financings in which the purchase price of the stock sold in the financing was at least three times higher than the prior round. Of these financings, seven were in Web 2.0 and related fields.

Other U.S. venture industry-related results for the quarter included the following:

• The amount invested by venture capitalists in the U.S. in 2Q07 was approximately $7.4 billion in 717 transactions, compared to $7 billion raised in 584 transactions in 1Q07. The amount invested this quarter was the highest amount of venture investment in a quarter since 4Q01

What does this mean? Has Web 2.0 been over-hyped? This week, we turn to Barry Kramer and Michael J. Patrick of Fenwick & West LLP as they review West Coast financing trends and terms.