United States: Silicon Valley Venture Survey - Second Quarter 2014

We analyzed the terms of 174 venture financings closed in the second quarter of 2014 by companies headquartered in Silicon Valley.

Overview of Fenwick & West Results
Valuation results in 2Q14 were the strongest in the history of our survey.

  • Up rounds exceeded down rounds 80% to 6%, with 14% flat. The 74 point difference between up and down rounds was the largest since we began calculating up/down rounds in 1Q02.
  • The Fenwick & West Venture Capital Barometer" showed an average price increase of 113%, the highest amount since we began calculating this statistic in 1Q04.
  • The median price increase of financings in 2Q14 was 75%, the highest amount since we began calculating medians in 2010.
  • The internet/digital media, software and hardware industries all had very strong results, with internet/digital media having the highest Barometer (169%) and median (99%) increases, software continuing not only to have strong valuations but also increasing its percentage of post Series A financings to 48%, and the hardware industry registering a very strong second best barometer result of 132%. The life science industry also posted solid results, while cleantech lagged other industries but still had reasonable results.

Overview of Other Industry Data
More generally, the second quarter of 2014 was another very strong quarter for the U.S. venture environment.

  • Venture capital investment hit its highest levels since the first quarter of 2001.
  • Venture-backed IPOs lagged the very strong 1Q14, but the number of IPOs in the first half of 2014 has already surpassed the full year totals for each of 2008-2012, and if current trends continue 2014 would be the best year for venture-backed IPOs since 2000.
  • Acquisitions in 2Q14 trailed a strong 1Q14, but were still healthy.
  • Venture fundraising had another good quarter, with the largest number of funds raising money since 4Q07, although dollars raised lagged 1Q14.
  • Venture capitalist sentiment for 2Q14 was essentially even with 1Q14, at a level of approximately 4 on a scale of 1 to 5
  • Venture Capital Investment
    U.S. venture capital investment in 2Q14 hit its highest quarterly level in dollar terms since 1Q01, and was approximately 35% higher than 1Q14 which was itself a strong quarter. The number of deals also increased, by a less dramatic but still significant 11% over 1Q14. A summary of results published by three leading providers of venture data is below.

2Q14 Investing into Venture Backed U.S. Companies

2Q14
($Billions)
1Q131
($Billions)
Difference
%
2Q14
Deals
1Q141
Deals
Difference
%
VentureSource2 $13.8 $10.7 29% 917 862 6%
MoneyTree3 $13.0 $9.5 37% 1,114 951 17%
CBI4 $13.9 $10.0 39% 974 890 11%
Average $13.6 $10.1 35% 1002 898 11%


1 As reported April 2014
2 Dow Jones VentureSource ("VentureSource")
3 The PWC/NVCA MoneyTree" Report based on data from Thomson Reuters ("MoneyTree")
4 CB Insights ("CBI")


While the amount of investment in 2Q14 was the largest since the dot-com era, it was significantly lower than dot-com levels.

Valuations were also high, as VentureSource reported that the median pre-money valuation for the second quarter was $58.3 million, the highest on record and 106% higher than the $28.4 million reported for 1Q14.

Investment in late stage companies continued to be very strong in 2Q14, with Series D and later financings taking 45% of all funding, and a five quarter high 17% of all deals, according to CBI. Similarly, the Wall Street Journal reported that venture firms invested $15.6 billion in late stage financings in the first half of 2014, which is on track to exceed the $28.5 billion invested in late stage companies in 2000. This increase in late stage financings is likely due in part to companies delaying their IPO and raising more money privately.

Software companies received $6.1 billion of the 2Q14 investment, including a single $1.2 billion investment, the largest single investment ever reported by the MoneyTree. Digital health was also very strong, with funding through the first half of 2014 exceeding all of 2013, according to Rock Health.

With the growth of databases such as CrunchBase and AngelList, more information on the startup environment is available. Medium.com recently analyzed some of this data and reported that on average, over the last 5 years:

  • Series B rounds raised 3x Series A rounds, Series C rounds raised 2.2x Series B rounds, and Series D rounds raised 1.9x Series C rounds, and that
  • Series B financings occur 484 days after the Series A financing, Series C financings occur 542 days after the Series B financing and Series D financings occur 530 days after the Series C financing.

The increased availability of venture focused databases is also increasing the use of "data driven" approaches to venture investing, as discussed in Forbes.

Like the technology industry in general, the venture capital industry is changing, with angels and online seed financing sites providing competition at the low end of the investment spectrum, hedge funds and private equity providing competition at the high end and corporations providing competition throughout the investment spectrum. As a result many venture capitalists are focusing on providing more "value-add" to differentiate themselves from other funding sources. Much of this value-add has consisted of additional services such as HR or accounting, improved networking/mentoring capabilities and the like. However we were recently intrigued to read in Strictly VC about a new venture fund (Upside Partners) providing a portion of the carried interest of their fund to management of its investee companies, to encourage collaboration among portfolio companies, and we assume to also improve the fund's ability to attract the best investment opportunities.

The growth in venture investing in 2Q14 was not limited to the U.S., as Europe saw its largest amount of investment since 2001 (€2.1 billion) per the Wall Street Journal, China saw its largest amount of investment ($2.8 billion) since at least 2006, per VentureWire, and Israel saw its highest quarterly investment amount ($930 million) since 2000, per IVC.

  • IPO Activity
    There were 25 venture backed IPOs raising $2.2 billion in 2Q14, according to VentureSource. Although this was a decline from the very strong 38 IPOs raising $2.9 billion in 1Q14, it was a very solid quarter.

Similarly, Thomson Reuters and the NVCA (Thomson/NVCA) reported 28 IPOs in 2Q14, although Thomson/NVCA reported an increase in funds raised. Four of the IPOs, including the largest, were China based. Sixteen of the 28 IPOs were life science companies, as life science companies continued to account for a large share of IPOs, including over 50% in each of the last six quarters.


2014 is on track to have more venture backed IPOs in any year since 2000, and the companies going public now generally seem more substantive than those that went public 15 years ago. For example, while 80% of tech IPOs in 1999 had less than $50 million of revenue, only 20% of IPOs in 2013 had revenue of less than $50 million, according to TechCrunch. The amount of money raised by companies pre IPO has also been increasing, per CBI.


Things were not as good for venture backed companies that went public in prior quarters, with the Thomson Reuters Post–Venture Capital Index (which measures the change in stock price of venture backed companies that have gone public over the past ten years), declining 16% in 2Q14.

In an effort to improve the public company prospects of smaller companies, the SEC has recently required U.S. stock exchanges to develop a one year pilot program to increase the stock "tick" size for a group of small and midsize public companies to as much as $0.05. This action was in response to concerns that the "decimalization" of stock quote tick sizes ($0.01 tick sizes), which occurred in 2001, has been detrimental to smaller and medium size companies by (i) reducing incentives for underwriters to pursue smaller IPOs, (ii) limiting the production of sell-side research and (iii) making it less attractive to be a market maker for these companies. We share the concerns about the effects of decimalization and look forward to the implementation of the pilot, although we have concern that the one year time frame might not be sufficient to cause a substantial change in banker/analyst/market maker behavior.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
30 Nov 2017, Conference, San Francisco, United States

The 2017 agenda addresses significant pending legislative and regulatory changes along with our annual substantive updates.

5 Dec 2017, Webinar, California, United States

This highly interactive colloquium will provide a deep understanding and practical advice regarding major e-discovery challenges facing organizations today.

6 Dec 2017, Seminar, California, United States

Network and be seen as an information security thought leader. “The Exchange” colloquium is designed for senior business executives and security practitioners from both the public and private sector.

 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Emails

From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.