Silicon Valley Venture Survey - First Quarter 2012

Background—We analyzed the terms of venture financings for 114 companies headquartered in Silicon Valley that reported raising money in the first quarter of 2012.

Overview of Fenwick & West Results

Up rounds exceeded down rounds in 1Q12, 65% to 22%, with 13% of rounds flat. This showed continued solid valuations in the venture environment, although a small drop off from 3Q11 and 4Q11, when 70% of rounds were up rounds. This was the eleventh quarter in a row in which up rounds exceeded down rounds. The Fenwick & West Venture Capital Barometer" showed an average price increase of 52% in 1Q12, a decline from the 85% reported in 4Q11, but still a solid showing. We note some weakness in late stage financing (Series E and higher) valuations, where 37% of the financings were down rounds and the Barometer reported only a 12% increase. Series B financings were also not as frothy as they have been, with a Barometer reading of 58%, the lowest since 4Q09, but still very solid. The results by industry are set forth below. In general software and digital media/internet companies continued to see the strongest valuation increases, with hardware and life sciences lagging. Overview of Other Industry Data

Venture valuations were healthy, but investment was down. M&A valuations were up, but the number of deals was down. Venture fundraising was mixed, but corporate venture investing was up. IPOs were up, and the passage of the JOBS Act is a further encouraging signal for the public market, but continuing global financial uncertainty, especially in Europe, is a concern. So what is the take-away? Venture fundraising continues to be problematic, and likely contributed to the decreased venture investment the last two quarters. However with IPOs improving, and interest rates still extremely low, there is reason to believe that venture fundraising will improve, if the global economic environment doesn't further increase risk averseness. The M&A market slowed a bit in 1Q12, possibly to give participants a chance to evaluate the improvement in IPOs, and its possible effect on valuations, but corporate America has plenty to spend, evidenced by their increasing participation in venture investment. And the areas of entrepreneurial focus and innovation are broad, with mobile, cloud, security, big data and of course social media all attracting substantial attention.

Venture Capital Investment.

Venture capital investment in the U.S. declined for the second quarter in a row, with the decline evident in most major industry segments, including internet/digital media.

Dow Jones VentureSource ("VentureSource") reported $6.2 billion of venture investment in 717 deals in 1Q12, a 16% decline in dollars from the $7.4 billion invested in 803 deals in 4Q11 (as reported in January 2012).

The PwC/NVCA MoneyTree" Report...