Wilson Sonsini: 2018 3Q Venture capital valuations down slightly


Wilson Sonsini published its Q3 2018 edition of The Entrepreneurs Report, and to sum it up, market conditions for venture funding remained very strong. Wilson Sonsini’s report indicates that deal size and pre-money valuations across all equity rounds decreased slightly but still remained high by historical standards. The key highlights of the report are as follows:

  • The proportion of up round financings rebounded in Q3 2018, increasing from 72% in Q2 2018 to 87% of Series B and later financings in the quarter. The share of down round financings decreased, from 15% in Q2 2018 to 10% in Q3 2018. Flat rounds were also less common in Q3 2018, decreasing from 13% of financings in Q2 2018 to only 3% in Q3 2018.

  • Nearly 70% of post-Series A rounds used pari passu liquidation preferences in Q1-Q3 2018 is the highest percentage in the past five years. The percentage of down rounds with senior liquidation preferences dropped dramatically, from 63% in 2017 to 25% in Q1-Q3 2018; meanwhile, the percentage of down rounds with pari passu preferences nearly doubled, from 38% in 2017 to 75% in Q1-Q3 2018.

  • The percentage of financings with no participation increased slightly from 84% in 2017 to 86% in Q1-Q3 2018, but the total represents a higher percentage than in any of the prior four full years. The use of redemption rights decreased dramatically, accounting for just 6% of Q1-Q3 2018 financings, down from 19% in 2017. The significant drop in the number of deals with redemption rights reflects the continuing leverage that companies have to dictate terms in a strong market.

  • The median amount raised in pre-Seed bridges increased slightly in Q3 2018, rising from $0.34 million in Q2 2018 to $0.43 million in Q3. In contrast, the median amount raised in post-Seed bridges fell from $1.61 million in Q2 2018 to $1.00 million in Q3 2018, which was lower than both the full-year 2017 median of $1.50 million and the five-year median of $1.28 million.

  • The percentage of pre-Seed loans with maturity periods of 12 or more months increased from 77% in 2017 to 96% in Q1-Q3 2018, with 23% of loans having interest rates of at least 8%, as compared to 25% in 2017. The percentage of post-Seed loans with maturity periods of 12 or more months increased from 60% in 2017 to 76% in Q1- Q3 2018, with 42% of loans having interest rates of at least 8%, as compared to 44% in 2017.

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!


Wilson Sonsini’s report (The Entrepreneurs Report – Q3 2018) can be found here: https://www.wsgr.com/en/insights/the-entrepreneurs-report-private-company-financing-trends-q3-2018.html

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