…if you move quickly, that is.
If you’re starting a company and raising a first round of capital, you’re raising money on the most favorable terms since the end of the last bubble. The latest data available gathered from the secretive world of venture capital show that the median value of a company raising a first round of capital is $8.66 million. That’s the highest since the first quarter of 2001, which was the tail end of the last bubble.
In other words, if you’re going to raise capital, do it now.
When venture capitalists invest money into a company, they negotiate its so-called “pre-money value” with the company’s founder, so they know how much of an ownership stake they own in return for their cash. The most recent data was taken from financings in the second quarter, and compiled by Dow Jones VentureOne.
A couple of caveats though. The first is that valuations can fluctuate significantly, and its difficult to tell how long the relative high will last. Note how value dropped to $5.4 million during the first quarter. Here’s a spreadsheet showing the historical trends, which shows how valuations have risen steadily, despite frequent fluctuations, since they bottomed out a few years ago after the Internet bubble burst in 2000/2001.
True, over the past two years, we’ve recommended several times that entrepreneurs start companies and raise money because of favorable. (See our story two years ago; note the data we referenced at the time was for all venture financings, not just for the first round). But the credit crunch, and continued woes in the housing sector appear to be a drag on the economy, and this could impact public stocks, which in turn affects the values of private companies.
Indeed, the values for private companies raising money at later rounds are actually down compared to last year. These companies are more mature, and more likely to be affected by public markets. The median second-round value was $16 million during the first half of the year, down from $17.8 million last year. For later rounds, values dipped to $35.25 million from $36 million. [Update: Don Jones, who runs a database/research company called VentureDeal expresses another widely held intepretation below, in comments.]
There are clouds on the horizon, but it’s not certain how just how stormy things will be, and how soon. But if you’re in the early stages, our advice would be to get it done quickly.
6 Comments
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Don Jones said:
The other interpretation of this statistic, which is generally confirmed by Thomson’s valuation numbers as well, is that prices for early stage companies haven’t changed in 6 years. Taking into account inflation over that time - say 15% - and venture capital firms are still getting companies for a discount vs. 6 years ago. Valuations in later round - expansion rounds are increasing as VCs change their focus to middle and later stage investments. There is still an early stage funding gap…
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Patrick Kerr said:
Okay…we could use some capital to take things to the next level… anyone got some?
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VC (Fenwick and West) said:
Matt, why don’t you disclose where you get the data. If you actually get it from Fenwick & West , please indicate so.
Please quote your source, don’t hide the fact where you really get the data.
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Ben said:
The other driver is that becuase the cost of creating one is lower (software stack, hardware etc), people are building more value before they actually have to raise outside money.
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Matt Marshall said:
VC, the data source is disclosed clearly in the text:
“The most recent data was taken from financings in the second quarter, and compiled by Dow Jones…”
Also, if you go the doc, its pretty clear too.
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Alex said:
It’s worth remembering that investors are also pursuing different sectors. A cleantech company is going to have fundamentally different valuation metrics than an internet startup.
6 Trackbacks
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Startup valuation - data you need, tips you can use when grocking it. - FoundRead said:
[...] issued by Dow Jones and Ernst & Young. Our friends at VentureBest digest the data nicely here, and offer a few important caveats. …“valuations can fluctuate significantly, and its [...]
8:45 pm
links for 2007-09-29 « Wizard of IdM’s Weblog said:
[...] VentureBeat » Starting a company? Your value could be pretty high… If you’re starting a company and raising a first round of capital, you’re raising money on the most favorable terms since the end of the last bubble. (tags: VC venture funding startup) [...]
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VentureBeat » Monster IPO quarter coming — to be highest since dot-com boom said:
[...] you VCs have been bullish already, these returns on their investments will make them even [...]
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VentureBeat » Monster IPO quarter coming — to be highest since dot-com boom said:
[...] you VCs have been bullish already, these returns on their investments will make them even [...]
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Marketing.fm » Thinking about Startups said:
[...] Starting a company? your value could be pretty high… [...]
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AjaxNinja's Instant Web 2.0 Business Plan Generator said:
[...] feeding frenzy going on in the venture capital world these days; as Venture Beat reported recently the average startup which is funded receives $8.6 million on average in its first round of capital. I figure with these time-tested Web 2.0 business plans you’re sure to grace the front pages [...]