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News
Venture Capital Valuations Drop Slightly in Q2 2003
Full apportionment credit is hereby given to VentureOne.
According to VentureOne, a leading information provider to the venture capital industry, valuations of venture-backed companies dropped slightly in the second quarter of 2003. VentureOne reported in their September 11, 2003 press release that “the median pre-money valuation fell from $9.8 million in the first quarter of 2003 to $8.7 million in 2Q03, a range comparable to valuations in 1995.”
“For the tenth quarter in a row, healthcare valuations continued to exceed those for information technology and products and services companies. The median pre-money valuation for venture-backed healthcare companies is $15.8 million, an uptick largely due to the healthy size of median valuations in first and second round companies and an increase in later stage financings. In contrast, the median was $8 million for both IT and products and services. Within IT, the median valuation dropped from $9 million in the first quarter of the year. This moderate fall is a result of a large drop in the valuations received by later stage communications and networking companies, but mitigated by the relatively consistent valuations given to software and semiconductor companies. Among all sectors, even profitable companies saw their valuations drop significantly, from a median of $20 million in the first quarter, to $9.5 million in the second quarter.
This quarter continued a recent trend of valuations regressing toward the median, with earlier rounds rising in value and later rounds declining. First round valuations rose from $4.2 million last quarter to $5 million in 2Q03. Second round valuations remained flat at $13.7 million, while later rounds dropped from $17 million to $15.8 million.
“The combination of declining valuations coupled with a steady median amount invested per round of financing -- now hovering in the $6-7 million range -- indicates that investors are commanding a larger ownership percentage in the companies they fund,” said Amity Wall, Manager of Research Operations at VentureOne. “In fact, in this second quarter, investors took a median 39% ownership stake in the companies they funded, the highest level we’ve observed over the past decade. And for first round financings alone, investors secured a median ownership percentage of more than 50%.” Some postulate with exit opportunities still bleak, investors must be both realistic about the return a company will provide within its investment cycle and aware that if a company needs several financing rounds the initial investors will be diluted considerably. Likewise, with the funding environment starting to show optimism but venture investment still hard to come by, entrepreneurs are willing to forfeit a greater slice of their company in order to raise capital, especially in the early stage.
In terms of fundraising, some $1.4 billion was committed to venture capital funds in the second quarter of 2003, a 50 % increase over the meager $936 million that was raised for venture investment in the first quarter of the year. Still, the number remains at mid-1995 levels, much like the median pre-money valuations.”
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