San Francisco Bay Area companies that succeeded in raising follow-on venture funding in the first half of the year experienced the biggest average valuation jump in years, according to a recent survey by Fenwick & West.
The Palo Alto, Calif.-based law firm found that area companies that raised additional funding in the second quarter saw their valuations increase by an average of 74% from the prior round, compared to 75% in the first quarter. The Q1 and Q2 valuation increases were the largest since the survey launched in 2002.
The findings “show a continuation of the strong positive trend in Bay Area venture valuations,” said Barry Kramer, a Fenwick & West partner and co-author of the report, in a statement. Kramer said the rise in startup valuations was driven by 12 financings in which the purchase price of the stock sold was at least three times higher than the prior round. Seven of those companies were in the Web 2.0 sector.
The survey also found that up rounds greatly outnumbered down rounds. Out of all follow-on financings in the second quarter, 81% were up rounds, 11% were down rounds, and 8% were flat. The ratio of up-to-down rounds was tied with Q1 for the highest ratio since the survey began.
The survey does not include companies that sought follow-on funding but failed to secure any. —Joanna Glasner