Q3 Venture Capital Terms: Like a Rolling Stone

For me, the latest venture financing report for the third quarter that ended September 30 brings to mind Bob Dylan’s revolutionary rock ballad, “Like a Rolling Stone.”

There is not only a sense of shattered hubris throughout the industry (granted, in some places more than others); there are no clear trends in the analysis of venture financings that the Cooley law firm recently released. Instead you see contrary indicators—some up, some down, some sideways. If there’s a trend, it is the aimless variety—with no direction home.

The report analyzes 92 deals nationwide with a total capital investment of approximately $988 million. The aggregate dollars and deal volume was generally consistent with prior quarters. So it’s been like this all year. (Bear in mind, these were all Cooley deals, which enables the firm to analyze the financing terms in detail. But Cooley deals represent only a portion of the venture survey totals we reported in October, based on stats from CB Insights and other sources.)

The law firm has made a complete version of its report available here.

In its analysis, Cooley characterized the quarter as “a mixture of optimism and caution.” The report shows a small decrease in “up” rounds, in which new investments are made at a higher price than previous rounds, and a corresponding increase in flat or down rounds during the quarter. Still, the majority of the deals were up rounds, and the percentage of up rounds, compared with flat or down rounds, was consistent with prior quarters. On the other hand, the report says that pre-money valuations were mixed, and it cited several other signs of investor caution. That wariness is reflected in these highlights:

—Median pre-money valuations, a term that refers to the valuation of a company prior to an investment or financing, increased to $7.8 million (from $7.4 million in the prior quarter) for Series A deals. It was the fourth consecutive quarter of increased valuations for Series A rounds, which is an encouraging sign for early stage ventures. Valuations for Series B deals increased sharply—doubling from $15.9 million in the prior quarter to $32.5 million—which Cooley suggests could be due to the year-long trend of increasing Series A valuations. On the other hand, valuations for

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Author: Bruce V. Bigelow

In Memoriam: Our dear friend Bruce V. Bigelow passed away on June 29, 2018. He was the editor of Xconomy San Diego from 2008 to 2018. Read more about his life and work here. Bruce Bigelow joined Xconomy from the business desk of the San Diego Union-Tribune. He was a member of the team of reporters who were awarded the 2006 Pulitzer Prize in National Reporting for uncovering bribes paid to San Diego Republican Rep. Randy “Duke” Cunningham in exchange for special legislation earmarks. He also shared a 2006 award for enterprise reporting from the Society of Business Editors and Writers for “In Harm’s Way,” an article about the extraordinary casualty rate among employees working in Iraq for San Diego’s Titan Corp. He has written extensively about the 2002 corporate accounting scandal at software goliath Peregrine Systems. He also was a Gerald Loeb Award finalist and National Headline Award winner for “The Toymaker,” a 14-part chronicle of a San Diego start-up company. He takes special satisfaction, though, that the series was included in the library for nonfiction narrative journalism at the Nieman Foundation for Journalism at Harvard University. Bigelow graduated from U.C. Berkeley in 1977 with a degree in English Literature and from the Columbia University Graduate School of Journalism in 1979. Before joining the Union-Tribune in 1990, he worked for the Associated Press in Los Angeles and The Kansas City Times.