Wilson Sonsini published its full year 2020 edition of The Entrepreneurs Report, and to sum it up, valuations are definitely up. Wilson Sonsini’s report indicates that deal volume, valuations, and amounts raised in venture financings kept pace with or even exceeded pre-pandemic years. The report analyzed the data on venture financing transactions in which the firm was involved during 2020 and also data from Beauhurst, a searchable database of the UK’s high-growth companies on UK equity investment in Q4 2020. The key highlights of the report are as follows:
Up rounds increased from 89% of Series B and later financings in Q3 2020 to 91% of such financings in Q4 2020, the highest percentage in the last five years. The full-year 2020 median pre-money valuations for early-stage rounds remained strong, with pre-money median valuations for Series Seed and Series A deals being $9.0 million and $30.0 million, respectively.
63% of all post-Series A rounds had pari passu liquidation preferences in 2020, the same as in 2019. For down rounds, those with senior liquidation preferences decreased, from 63% in 2019 to 56% in 2020. Meanwhile, the percentage of down rounds with pari passu preferences increased from 37% in 2019 to 44% in 2020.
The percentage of financings with no participation increased slightly, from 85% in 2019 to 88% in 2020. Broad-based weighted average anti-dilution remained stable at 95% in 2020, as compared to 94% in 2019. The use of redemption rights also remained steady, at 13% of 2020 financings, similar to 14% in 2019.
The median amount raised in pre-Series A bridge loans increased from $0.98 million in Q3 2020 to $2.00 million in Q4 2020. The median amount raised for post Series A bridge loans also increased from $2.10 million in Q3 2020 to $3.74 million in Q4 2020. The full-year 2020 median amount raised for both pre- and post-Series A bridge loans were the highest annual medians of the past five years, at $0.71 million and $2.63 million, respectively.
The percentage of pre-Seed bridge loans with maturity periods of 12 or more months increased from 87% in 2019 to 90% in 2020, with 85% of loans having interest rates below 8%, as compared to 87% in 2019. The percentage of post-Seed bridge loans with maturity periods of 12 or more months remained stable at 73% in 2020, as compared to 74% in 2019, with 54% of loans having interest rates below 8% in 2020, as compared to 70% in 2019.
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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Wilson Sonsini’s report (The Entrepreneurs Report - Full-Year 2020) can be found here: https://www.wsgr.com/en/insights/the-entrepreneurs-report-full-year-2020.html