Fenwick published its interim report on the venture capital environment in light of the COVID-19 pandemic. Fenwick’s April 2020 survey indicates that venture valuation changes continued to be weaker than normal, but were mildly stronger than March 2020. The survey found the following:
The percentage of up-rounds declined modestly from 72% in March to 70% in April, and both were lower than the 83% of financings that were up-rounds in 2019. The number of down-rounds also declined, from 16% in March to 12% in April, although both were higher than the 8% down-rounds in 2019. Accordingly, the percentage of flat rounds increased, to 18%, compared to 13% in March and 9% in 2019. This increase in flat rounds may be a signal that there were more rounds led by insiders.
According to The Fenwick & West Venture Capital Barometer, the average price increase of 60% in April from 42% in March, both below the 2019 average of 93%. The median price increase increased slightly, from 26% in March to 30% in April, again below the 60% median price increase seen in 2019.
Deal volume increased, and was consistent with 2019 monthly results. The number of deals increased from 54 in March 2020 to 64 in April 2020. The average number of monthly deals in 2019 was 65.
Late-stage deals percentage increased as the percentage of Series D and E+ deals increased to 38% of all financings in April, an increase from 21% in March and the highest since August 2018 when Series D/E+ deals combined for 42% of all financings. Also, the average price increase for late-stage financings was only 26%, compared to 35% in March and 59% in 2019.
Internet/new media and software were by far the strongest industries from a valuation increase perspective, with hardware showing the worst results.
The percentage of life sciences deals continued high at 25% of all financings, compared to 28% in March. During 2019 the percentage of life sciences deals was 14%.
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 Flash Report - April 2020) can be found here: https://www.fenwick.com/insights/publications/silicon-valley-venture-capital-flash-report-april-2020