Fenwick & West Venture Capital Survey Q1 2012The first quarter of 2012 was the best quarter in more than four years for software and Internet company IPOs, according to a new report.

But in the aftermath of Facebook’s much-hyped and problematic IPO, can the momentum continue?

Tech-focused Silicon Valley law firm Fenwick & West has released a report called “Trends in Terms of Venture Financings in Silicon Valley” for the first quarter of 2012. The report examined 114 companies headquartered in Silicon Valley that reported raising money in the quarter one 2012. It compiles funding and investment information from  Dow Jones VentureSource, Thomson Reuters, the National Venture Capital Association, and Fenwick & West’s Venture Capital Barometer.

By the end of the first quarter 2012, 50 Silicon Valley companies had registered to go public, more than in any quarter since Q4 2007. How many IPOs happened and how much money they raised depends on which source you rely on:

  • VentureSource reported 20 venture-backed IPOs collectively raised $1.4 billion in Q1 2012, compared to 10 IPOs raising $2.4 billion in the Q4 2011.
  • Thomson Reuters and the NVCA reported 19 IPOs raising $1.5 billion in Q1 2012, compared to 12 IPOs raising $2.6 billion in Q4 2011.

During the first quarter, up rounds (a round where a company receives money at a higher valuation than it got during its last round) exceeded down rounds (a round where the company’s valuation decreases) by 65 percent to 22 percent. Thirteen percent of rounds were flat, with no valuation changes. This is slightly down from the fourth quarter of 2011, when up rounds made up 70 percent of funding.

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Q1 2012 is the eleventh consecutive quarter where up rounds exceeded down rounds, according to the report. That means investors are gaining more confidence in the technology industry, prompting them to invest at higher valuations.

“The first quarter of 2012 was a mixed quarter for the venture capital industry, with venture valuations healthy but venture investment down, M&A valuations up but the number of deals down, venture fundraising mixed but corporate venture investing up, and IPOs and Nasdaq up, but Nasdaq down in the second quarter to date and global financial uncertainty continuing to be a problem”, said Fenwick and West partner, and co-author of the report, Michael Patrick.

However, while the number of IPOs was up, the overall amounts of venture capital investments were down in the first quarter:

  • Dow Jones VentureSource reported $6.2 billion in 717 deals in Q1, down 16 percent from 2011’s first quarter.
  • Thomson Reuters and the NVCA reported $5.8 billion of funding in 758 deals in Q1, with a 12 percent decline over last year.

The biggest issues moving forward is venture capital fundraising, according to the report. As VC firms struggle to raise money for their funds, venture capital investments decline. There were conflicting reports on VC fundraising:  Thomson and the NVCA reported a 13 percent decrease from Q4 2011 and Dow Jones reported a 35 percent increase over the same time frame.

Strong first-quarter IPOs may help the market in the near future. Mobile, cloud, security, big data and social media have attracted attention and funding, which according to the report won’t change anytime soon. But the longer-term prospects for IPOs may be hurt if venture capital firms have trouble raising money for their funds, or invest less in the startups that will eventually become future IPOs.

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