Q3 Venture Capital Terms: Like a Rolling Stone

11/24/10Follow @bvbigelow

For me, the latest venture financing report for the third quarter that ended September 30 brings to mind Bob Dylan’s revolutionary rock ballad, “Like a Rolling Stone.”

There is not only a sense of shattered hubris throughout the industry (granted, in some places more than others); there are no clear trends in the analysis of venture financings that the Cooley law firm recently released. Instead you see contrary indicators—some up, some down, some sideways. If there’s a trend, it is the aimless variety—with no direction home.

The report analyzes 92 deals nationwide with a total capital investment of approximately $988 million. The aggregate dollars and deal volume was generally consistent with prior quarters. So it’s been like this all year. (Bear in mind, these were all Cooley deals, which enables the firm to analyze the financing terms in detail. But Cooley deals represent only a portion of the venture survey totals we reported in October, based on stats from CB Insights and other sources.)

The law firm has made a complete version of its report available here.

In its analysis, Cooley characterized the quarter as “a mixture of optimism and caution.” The report shows a small decrease in “up” rounds, in which new investments are made at a higher price than previous rounds, and a corresponding increase in flat or down rounds during the quarter. Still, the majority of the deals were up rounds, and the percentage of up rounds, compared with flat or down rounds, was consistent with prior quarters. On the other hand, the report says that pre-money valuations were mixed, and it cited several other signs of investor caution. That wariness is reflected in these highlights:

—Median pre-money valuations, a term that refers to the valuation of a company prior to an investment or financing, increased to $7.8 million (from $7.4 million in the prior quarter) for Series A deals. It was the fourth consecutive quarter of increased valuations for Series A rounds, which is an encouraging sign for early stage ventures. Valuations for Series B deals increased sharply—doubling from $15.9 million in the prior quarter to $32.5 million—which Cooley suggests could be due to the year-long trend of increasing Series A valuations. On the other hand, valuations for … Next Page »

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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