Trends in Venture Financing — 2Q06 Data

The 2Q06 compilation produced by Fenwick and West regarding vc financing trends in Silicon Valley has just been released, and it continues to show strength in activity and valuation. The most notable point, which needs to be confirmed in the next couple of quarters to really be meaningful, is that valuations have grown by a lower factor than in Q106 and Q405. Other data points listed in the report (statistics are provided by Dow Jones VentureOne):

• The Fenwick & West Venture Capital Barometer™ showed a 34% average price increase for Silicon Valley companies receiving venture capital in 2Q06 compared to such companies’ previous financing round. Although this was a significant increase, it was less of an increase than in the prior four quarters.

• The amount invested by venture capitalists in the U.S. in 2Q06 was approximately $6.7 billion, an increase over $6.4 billion in 2Q05 and $6.2 billion in 1Q06. The combined total of $12.9 billion for the first half of 2006 puts the industry on pace for its largest investing year since 2001. We seem to be on track for a $25B to $28B total invested capital this year. Acquisitions of venture backed companies in the U.S. in 2Q06 was approximately $7.1 billion in 92 transactions. This was a decline from $8.5 billion / 97 transactions and $8.4 billion / 103 transactions in 2Q05 and 1Q06, respectively, although the combined total of $15.5 billion / 195 transactions for the first half of 2006 puts the industry on pace for its best acquisitions year since 2000.

• There were 16 IPOs of venture backed companies in the U.S. in 2Q06, of which 10 were health care companies. These IPOs raised $1.3 billion. This was an improvement over 13 IPOs raising $0.6 billion in 1Q06 and the combined total of 29 IPOs raising $1.9 billion in the first half of 2006 puts the industry on pace to have its best IPO year since 2000, other than 2004 when 67 IPOs raised $5 billion.

• Just to add an additional perspective, VC funds have raised close to $12B in 2Q06 (and about $18B since the beginning of the year), according to the Merc. Two funds (Oak and NEA) have raised about $2.5B each, which tends to skew the numbers, but still, it is a lot of capital to deploy in a market that sees companies building much more efficiently.

These statistics cover a large spectrum of deals, from seed to very late stage. What I can say on the early stage is that 1) there is a lot of activity — both in terms of startups looking for financing, and 2) financing rounds actually closing. I will try and dig more quantitative info for that sector (any pointer would be appreciated).

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