money-growing-on-trees.jpgThe median valuation of U.S. private companies dropped from the six-year high reached late last year, but remains higher than a year ago, according to the latest quarterly valuation report from Dow Jones VentureOne.

Valuations on venture-backed companies are negotiated by venture capitalists and entrepreneurs. If valuations head lower, that is not great for companies because it means they give away a larger stake of their company for the dollars they get from venture capitalists.

At $18.5 million for the first quarter of 2007, the median pre-investment valuation is modestly above the $16.4 million median recorded in the first quarter of 2006, but slightly below the $20 million median it topped out at in the fourth quarter of last year. See the full data here (downloads excel file).

This comes after a report last week by law firm Fenwick & West showing that a greater percentage of companies negotiated higher valuations in follow-on rounds than in any other quarter on record (79 percent of SF Bay Area companies negotiated up rounds vs. 9 percent down). This suggests the investment climate is still hot.

The two reports are compatible. Overall valuations can decline slightly, even as a greater percentage of companies negotiate higher valuations than their previous rounds (its just that the overall levels of those valuations are not as high as the quarter before). Confused? Well, put simply, we’ll have to wait another quarter or two to see if things are really cooling down.

Biopharmaceutical companies posted the most significant increase in values, according to the Dow Jones report, with the median valuation rising to $28 million from $15 million in the first quarter of 2006. The healthcare industry overall, however, was down with the median valuation dropping to $22.1 million in the current quarter from $27 million a year ago.

Information technology company valuations held steady from a year ago, at a median $15.4 million, although each segment within the IT category posted some declines during the most recent quarter, according to the data.

Finally, it’s worth noting that later-round valuations, which fell in the fourth quarter, rose in the most recent quarter — reflecting the heavy action right now in the M&A and IPO markets, where more mature companies are getting snapped up by other companies or going public. The $41 million median price set in all companies raising a third or later round was the highest since the second quarter of 2001, when it was $42.9 million.

[Disclosure: Fenwick & West is a sponsor of VentureBeat]

VentureBeat's mission is to be a digital town square for technical decision-makers to gain knowledge about transformative enterprise technology and transact. Discover our Briefings.