Valuations of startups soar in Q3

VC-backed startups are worth more now than in 2005.

The median valuation of venture-backed companies in the United States nearly doubled to more than $20 million during the third quarter, up from $11.8 million during the same period last year, according to a study released last week by Dow Jones VentureOne.

Strategic acquirers may be driving this trend as they fork over cash to purchase hot technologies. Nowhere is this more evident than in the information technology market, where the median acquisition price of startups hit $47 million, the study says.

The biggest valuation gains were in information services, where valuations climbed during the third quarter by 143% over valuation levels during the same period in 2005 to a median of $22.5 million. “Information technology companies have found a successful path to exit via mergers and acquisitions this year. As a result, still private IT companies with promising exit potential are gaining higher valuations to reflect the current market conditions,” said Steve Harmston, director of global research for VentureOne.

In the software sector, valuations climbed 137% to $22 million. The biggest valuation loser was the biopharmaceuticals space, where valuations edged down 21% to $12.5 million. Meanwhile, health care valuations flattened with an overall pre-money median of $16.6 million, about the same as a year ago. Within that segment, the median valuation for medical devices companies was $16.7 million, down from $17.9 million.

Profitable startups got the biggest jump in valuation during the third quarter, climbing nearly 200% to $22 million, from their valuation levels during the third quarter of 2005 of $7.4 million. This may be the product of an increasingly robust IPO market for profitable companies. —PE Week staff