Venture capital backed companies are being valued at the highest level since 2000, according to the latest survey by Dow Jones VentureOne.
Venture capital firms, awash with capital from investors, are bidding up prices when they compete to invest in companies. Companies enjoy this, because a higher value means the entrepreneurs have to give away less of their company in return for the investment.
The median pre-investment valuation of U.S. venture-backed companies reached $18.5 million for 2006, up from $15.9 million in 2005. Also called the “pre-money” valuation, this is the value of the company agreed to by entrepreneurs and VC firms before the money is invested.
In the fourth quarter alone, the median valuation was even higher, reaching $20 million, compared to $11.7 million in the fourth quarter of 2005.
The median valuation for seed round financings in 2006 was $2.4 million, up from $1.8 million in 2005. For first round financings, it grew from $5.5 million in 2005 to $6 million in 2006. The later round median increased from $32 million in 2005 to $35.4 million in 2006.
In both healthcare and IT, valuations went up. The median valuation for an IT financing reached $20.8 million in 2006â€”double what it was three years ago and the highest level since 2000. The median valuation for healthcare financings reached $19.5 million in 2006, around the same as 2000 levels, the survey found.
From the statement:
“The rebounding opportunities for venture-backed companies to achieve liquidity, either via an IPO or an acquisition, are boosting these median valuations higher. In 2006, the U.S. had the strongest exit climate in several years with the median pre-money valuation of IPO companies reaching $201.6 million and a median $52 million being paid to acquire companies,” said Steve Harmston, director of global research for VentureOne.
Within the information technology segment, communications companies posted the highest median valuation at $29.9 million, up from $20 million in 2005. Electronics and computer hardware companies’ median valuation also grew, from $14.9 million in 2005 to $24.9 million in 2006. In the health care category, only medical software and information systems companies saw an increase from a year ago, with the median posted at $22.6 million, up from $8.2 million.
In Europe, the overall median premoney valuation increased, to â‚¬5.6 million, up from â‚¬4 million in 2005, which is the highest annual point in five years. Reflecting the increased interest in early-stage investment in Europe last year, the median valuation for seed rounds increased significantly, to â‚¬1.9 million, from â‚¬630,000 in 2005. The later round valuation rose as well, to â‚¬11.4 million, from â‚¬8.8 million.
“The increased valuations reflect the increased interest of investors to refocus on early-stage rounds in Europe last year. Additionally, the positive exit environment for venture-backed companies in Europe, particularly in the IPO market, is contributing to higher later-stage valuations” said Mr. Harmston.
The highest overall median by industry in Europe was for the health care category, which posted a median of â‚¬8 million in 2006, up from â‚¬7 million in the prior year. The overall IT median valuation was â‚¬5.7 million, up from â‚¬3.8 million; the overall business, consumer and retail company valuation was â‚¬6.3 million, up from â‚¬4 million.
In Europe, by country, the United Kingdom posted the highest overall valuation in 2006 at â‚¬6.6 million, up from â‚¬3.7 million a year ago. The median valuation in France also climbed, to â‚¬5.3 million, from â‚¬4.2 million. The median valuation declined in Germany dropping from â‚¬8.5 million in 2005 to â‚¬4 million in 2006.