I am often asked if things are feeling better in Silicon Valley. Are things looking up? My answer is essentially "yes." Things do feel better. Serial entrepreneurs who sat out the early 2000's are getting back into the game. Deal flow has picked up across the board. The public market for technology stocks is opening up . . . a bit. Later stage venture investors are more enthusiastically looking for opportunities to put money to work. The environment really is feeling better. But as much as it's feeling better, it has just been that, a feeling. Until now.
I've written about Fenwick and West's survey of venture financings before. Fenwick has been tracking venture financing terms since the second quarter of 2002. In this quarter's survey (First Quarter 2004) Fenwick is reporting a noticeable and uniform upturn in venture financings. For the first time since 2002, the number of up rounds (51%) exceeded flat (19%) and down rounds (30%) combined. In fact, the percentage of down rounds decreased in every series, most notably in Series E and higher. Terms generally followed price as well, with less punitive liquidation preference and anti-dilution being the norm. Given all that, I would say that we have our first quantitative piece of evidence that the venture financing environment is on the upswing. That's good news. I hope that the trend continues.
Ok, that said, despite the apparent evidence of an upswing, lawyers can never leave well enough alone, can they. The Fenwick survey points out, "it is important to bear in mind that most of the companies that raised funding this past quarter last raised funds 12-24 months ago, when valuations were depressed." Sure, that's true, but the environment still feels better to me. So we'll have to wait and see if the trend continues.