News
U.S. Venture Capital Valuations Decline in Q4 2003
Full apportionment credit is hereby given to VentureOne.
According to VentureOne, a leading information provider to the venture capital industry, median pre-money valuations dropped slightly in 4Q03, although the median valuation of information technology companies reached its highest level in two years, according to VentureOne, the leading information provider for the venture capital industry. The overall median pre-money valuation for a venture-backed company was $10.7 million, down from $12 million posted in the third quarter of the year.
Valuations for IT companies overall reached $13 million this quarter, matching the recently higher valuations received by healthcare companies for the first time since mid-2001. For IT, it was the highest level since 4Q01 and was bolstered by increased quarterly valuations for communications companies ($18.5 million), electronics companies ($16 million), and software firms ($12 million). Furthermore, semiconductor and communications companies that received later-stage financing posted the highest median valuations this quarter, at $58.3 million and $51.3 million, respectively. Information technology companies overall showed increased median valuations across all round classes.
"While showing an increase for the quarter, the yearly median valuations for information technology companies are on par with mid-1990s levels at $9.1 million. However, healthcare saw yearly valuations at the second highest level ever—only behind the valuations reached in 2000," said John Gabbert, Vice President of Worldwide Research at VentureOne.
Healthcare companies as a whole saw their valuations normalize this quarter at $13 million, compared to the $22 million valuation reported last quarter. Overall, healthcare companies have seen valuations remain relatively stable over the past three years, faring much better than other industries. Notably, the median valuation for biopharmaceutical companies for the year is $23 million, its highest level ever.
The overall drop in valuations over the past few years is causing other adverse effects for entrepreneurs looking for capital, particularly given the fact that the median amount raised in a venture capital financing has not dropped as quickly.
"When compared with the steady median amount invested in an early round of financing, the discounted valuations in 2003 are resulting in investors taking a larger ownership stake. Specifically, investors at the first round are taking a median ownership percentage of 50%, possibly safeguarding against the potential of becoming significantly diluted in follow on financings," Gabbert said.
By development stage, venture-backed companies that have already achieved profitable status received the highest valuation this quarter at $14 million. But for the first time, companies identified as being in the product development stage actually reported higher median valuations than those companies who are already shipping products, $12.3 million vs. $10 million. This is mostly due to the larger medians valuations garnered by healthcare companies. In fact, healthcare companies in clinical trials or product development stage had median valuations of $17.5 million, the highest amount for any industry by development stage.
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