11/19/2007
Venture Financing Report—November 2007
Up Rounds vs. Down Rounds: An Indicator of the Overall Investment Climate
One of the questions that investors and entrepreneurs often ask is, "What is the overall investment climate for venture-backed companies, and is it improving or getting worse?" There are a number of different indicators one can look at that help answer that question such as the number of start-ups that have received venture funding, the aggregate amount of venture capital that has been invested in private companies and the trend in median premoney valuation of venture-backed firms at various stages of development (a subject that was discussed in the Q4 2006 Venture Financing Report).
One of the other indicators that can be used to help gauge the overall investment climate for venture-backed companies is the percentage of up round financings for a given period. An up round refers to a financing transaction in which the investors in the latest round of financing pay a higher price for the company's securities than was paid in the previous round of financing, while a down round occurs when investors pay a lower price than in the previous round. If the percentage of up round financings is high, the investment climate is relatively strong. On the other hand, if the percentage of down round financings is high, the investment climate is relatively weak.
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