We analyzed the terms of 189 venture financings closed in the third quarter of 2019 by companies headquartered in Silicon Valley. The quarter recorded the highest average price increase since mid-2015. The software and internet/digital media industries were again the industries with the two strongest valuation results in the quarter.
Overview of Fenwick & West Results
Valuation results remained strong in Q3 2019, but, aside from a spike in the average price increase in the quarter, have largely plateaued in 2019.
- Up rounds exceeded down rounds 81% to 7%, with 12% flat in Q3 2019, a decline from Q2 2019 when up rounds exceeded down rounds 86% to 6%, with 8% flat.
- The Fenwick & West Venture Capital Barometer" showed an average price increase in Q3 of 88%, an increase from the 77% recorded in the prior quarter, and the highest average price increase since Q3 2015.
- Following four consecutive quarters of increases, the median price increase of financings declined moderately from 58% in Q2 to 54% in Q3.
- Similar to the prior quarter, valuation results for Series B and C financings were stronger compared to the prior quarter, while valuation results for Series D and E financing rounds weakened further.
- The software and internet/digital media industries both recorded stronger valuation results in Q3 compared to the prior quarter and were again the industries with the two strongest valuation results in the quarter. The hardware industry recorded a considerably higher average price increase in Q3 compared to the prior quarter, while the median price increase for the industry declined. The valuation results for the life sciences industry in Q3 lagged those for the other industries and declined compared to the prior quarter.
Overview of Other Industry Data
The United States venture environment remains robust through the first three quarters of 2019, but has retreated from the peak levels recorded in 2018. In particular, the third quarter of 2019 saw a significant decline in venture capital investment activity compared to the prior quarter and the year ago period.
- The pace of investments and the amount of capital invested in Q3 2019 U.S.-wide were both down appreciably compared to the prior quarter and the year ago period.
- Despite the decline in deal volume and aggregate deal value, median deal size increased in Q3 to the highest median amount since Q4 2000.
- Later-stage invested capital allocation recorded the greatest gain compared to the prior quarter. Seed-stage deal share and percentage of total invested capital also recorded modest gains in the quarter.
- The internet sector continued to receive the greatest share of investments, followed by the healthcare sector and the mobile and telecommunications sector.
- The San Francisco Bay Area (including Silicon Valley) took in the largest share of investments in Q3 in terms of both deal volume and aggregate invested capital, followed by the New York metro and Los Angeles areas.
- U.S. venture-backed IPO activity declined in Q3 after a surge in activity in the prior quarter. Nevertheless, the aggregate amount raised in IPOs in the quarter ranked as the second highest in the last seven years.
- Venture capital fundraising in 2019, while still strong, has been off pace from the recordbreaking levels of 2018. The fundraising timeline has also extended with the average and median time to close a fund increasing in 2019 after having declined over the past several years.
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