03/20/2008
Venture Financing Report—March 2008
The overall investment climate for privately held startups showed signs of cooling in the third quarter of 2007 after posting strong results for most of the previous two years.* Early stage financings continued to dominate, with Series A and Series B financings accounting for two-thirds of all deals.
Median pre-money valuations for all but late stage financings declined markedly in the third quarter of 2007. Series A median pre-money valuations dropped from $7.1 million in the second quarter of 2007 to $5.6 million in the third quarter of 2007, Series B dropped from $25 million to $20.3 million in that same time period, and Series C dropped from $55.1 million to $28.9 million. By contrast, median pre-money valuations for Series D or later stage companies continued to strengthen, although lower deal volumes in this category tend to result in wider fluctuations.
Further evidence of a cooling market was the fact that the percentage of up round financings continued to decline from the highs of last year. Up round financings accounted for 67% of all transactions in the third quarter of 2007, down from 77% in the third quarter of 2006. This is the lowest percentage of up round financings since the third quarter of 2005. The third quarter also saw an increase in the percentage of transactions with pay-toplay and drag along provisions, each of which are more commonly implemented in more challenging market environments.
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