Background
Fenwick published its interim report to highlight changes in the Silicon Valley venture capital environment through July 2020 in light of the COVID-19 pandemic. Fenwick’s survey indicates that the venture environment is looking strong as deal volume continued to be strong in July 2020, with a notable increase in the percentage of early-stage financings. The report stated the following:
Financing volume is strong as the number of Silicon Valley venture financings increased to 73 in July 2020 from 63 in June 2020, and surpassed the 2019 monthly average of 65.
Valuations improving, although still lagging pre-pandemic results as the percentage of up-rounds increased slightly from 74% in June 2020 to 78% in July 2020. July 2020 had the highest percentage of up-rounds since February 2020 but continued to trail the 83% average up-round percentage in 2019.
The average share price change of financings increased significantly, from 46% in June 2020 to 81% in July 2020. This was the largest monthly price increase since January.
Investing was generally strong across industries, with life sciences outperforming compared to its historical performance. The life sciences industry averaged 15 financings a month since January 2020, compared to its average of nine financings a month in 2019. However, hardware deal volume continued at a low level.
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.
Contact us today to learn how the venture capital financing market may impact the value of your company and the price at which you issue options!
Fenwick’s survey (Silicon Valley Venture Capital Flash Report – July 2020) can be found here: https://www.fenwick.com/insights/publications/silicon-valley-venture-capital-flash-report-july-2020
