A Glimmer of Light in VC Land

DFN: Looks like VC activity maybe turning up.

A Glimmer of Light in Venture-Capital Land
By Pui-Wing Tam
November 10, 2009, 6:29 PM ET
http://blogs.wsj.com/digits/2009/11/10/a-glimmer-of-light-in-venture-capital-land/

The venture-capital industry is undergoing some tough times, with returns scarce and new money hard to raise in the recession. But a new survey by law firm Fenwick & West shows some optimism is emerging as venture capitalists mark up the valuations of their start-up investments.

According to the Fenwick & West survey, which covers the third quarter, 41% of new venture financings in that period were for up rounds, which means a company was given a higher valuation when it received venture money. That compares to 36% down rounds and 23% flat rounds. It was the first quarter this year where up rounds exceeded down rounds, said the survey.

Indeed, there were 46% down rounds in the second quarter versus 32% up rounds, while there were 46% down rounds in the first quarter compared with just 25% up rounds, according to Fenwick & West attorney Barry Kramer.

The up rounds weren’t evenly spread across venture-capital sectors, however. Many of the up rounds happened in the digital media and Web 2.0 sectors, where approximately 70% of the financings were up rounds in the third quarter, according to the survey.

Kramer posits that the increase in up rounds was driven by factors such as the surging Nasdaq stock market, which rose in the third quarter. “There’s also the feeling that the world just didn’t fall off a cliff,” Kramer added.

The trend of up rounds may be temporary. “It’s hard to generalize much from one quarter,” acknowledged Kramer. Still, “valuations seem to moving in the right direction.”

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