Background — We analyzed the terms of venture financings for 117 companies headquartered in the San Francisco Bay Area that reported raising money in the first quarter of 2007.

Overview

The results of the 1Q07 survey showed a continuation of the strong positive trend in venture valuations. The highlights of the quarter were as follows:

  • Up rounds exceeded down rounds for the thirteenth quarter in a row (79% up vs. 9% down, with 12% flat). This was the largest ratio of up rounds to down rounds since we started the survey in early 2002.
  • The Fenwick & West Venture Capital Barometer showed a 75% average price increase for companies receiving venture capital in 1Q07 compared to such companies’ previous financing round. This was the largest increase since the survey began. This increase was driven in part by eleven 1Q07 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 eleven financings, most were in Web 2.0 and related fields.
  • The non price terms of financings in 1Q07 were also company favorable, with the use of senior liquidation preference and participating liquidation preference at the lowest levels since the survey began.

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

  • The amount invested by venture capitalists in the U.S. in 1Q07 was approximately $7 billion in 584 transactions, compared to $6.3 billion raised in 598 transactions in 4Q06. The amount invested this quarter was the second highest amount of venture investment in a quarter since 4Q01.Venture investment in healthcare hit $2.9 billion, the highest investment level on record for that industry.1
  • Investments in internet and cleantech companies also increased significantly.2
  • Acquisitions of venture-backed companies in the U.S. in 1Q07 was very strong, with 95 transactions totaling $9.4 billion compared to 79 transactions totaling $7.5 billion in 4Q06. Acquisition activity in 1Q07 was the highest amount in dollar terms since 4Q00. The median acquisition amount, at $105 million, was very strong, and approximately equal with the internet bubble year of 2000.1
  • IPOs of venture-backed companies declined on a transaction basis but were flat in dollar terms compared to 4Q06, with 13 IPOs raising $1.2 million in 1Q07 compared to 18 IPOs raising $1.2 million in 4Q06. Seven of the 13 IPOs were IT, the most since 3Q04, five were healthcare and one was retail.1
  • Nasdaq was flat in 1Q07, but is up 5.6% in 2Q07 to date.  [see table]