01/30/2006
Cooley Godward Report Shows Investment Climate For Startups Improving
Palo Alto, Calif., January 30, 2006 — Cooley Godward LLP today released its most recent quarterly report of venture capital financing activity which showed that the overall strong investment climate for privately-held startups continued in the third quarter of last year. According to the report, early-stage startups are attracting more interest from venture capitalists, company valuations are continuing to rise and entrepreneurs are striking better deals with investors.
The complete version of Cooley’s comprehensive and detailed report on venture capital investing, "Quarterly Report: Private Company Financings," is available at www.cooley.com/pcfreports. Among the report's highlights:
—Startups are attracting strong interest from VCs. Series A financings alone accounted for 51% of all deals in the most recent quarter, a far greater percentage than during any period in the last two years. Early-stage financings accounted for 74% of all deals during the first three quarters of 2005, a significant jump from 2004 when early-stage financing accounted for just 60% of all deals.
—Company valuations are continuing to rise. The percentage of up-round financings (transactions in which the valuation of a company increased relative to the prior round of financing), rose to 69% in the third quarter of 2005, a significant jump from the previous quarter's 54%. For the first three quarters of 2005 up rounds accounted for well above 50% of all deals, a significant change from several years ago when down rounds (in which the valuation of a company decreased after a new round of financing) accounted for more than half of all deals.
—Entrepreneurs are striking better deals. Ratchet antidilution provisions (a method by which investors protect their ownership stake in a company during subsequent rounds of financing) accounted for just 5% of all deals in the third quarter, compared to 18% in the same period of 2004. Nearly 10% of all deals in the third quarter of 2005 had no antidilution provision, compared to just 8% in the same period of 2004.
“Because of the improved investment climate, startups are finding it easier to raise money on favorable terms today than it was one or two years ago,” said Jim Fulton, a partner in Cooley Godward's Palo Alto office, and head of the firm's Emerging Companies practice. “Entrepreneurs and venture capitalists alike are able to secure higher valuations for companies, which is not only good for them, but good for the overall economy.”
Cooley’s "Quarterly Report: Private Company Financings" is based on private company transactions in which the firm served as counsel to either the issuing company or the investors. In the third quarter of 2005 Cooley participated in 80 transactions, resulting in aggregate proceeds to private companies of about $751 million.
In 1959, Cooley formed the first institutional venture capital limited partnership in the western United States. Since then the firm has been at the vanguard of private company financings, both as a representative of hundreds of venture capital and private equity partnerships and as counsel to companies and entrepreneurs raising money from the venture capital community. Industry sectors include all areas common to venture capital financings, including communications, computer hardware and networking, consumer electronics, general retail, Internet, life sciences, semiconductors, and software.
About Cooley Godward
Cooley Godward is an established provider of strategic litigation and business transaction services and a recognized leader in the representation of high-growth private and public companies, financial institutions, venture capital firms and nonprofit organizations. Cooley’s singular focus on providing the highest quality legal services has enabled our clients to achieve their strategic business objectives and garnered for Cooley recognition as one of the country's leading law firms.
Cooley was recently named to The American Lawyer magazine’s 2005 “A List,” the publication’s annual ranking of “the best of the best” among the nation's top law firms. For additional information please visit www.cooley.com.
Media Contact:
Ashley Kanigher
Cooley Godward LLP
(650) 843-5721
akanigher@cooley.com