02/26/2009
Cooley Report Highlights Trends in Recent Venture Capital Financings
Palo Alto, Calif. – February 26, 2009 – Cooley Godward Kronish LLP today released its most recent report on venture capital financing terms. The report analyzes the Firm’s venture capital transactions nationwide that closed during 2008, with selected comparisons to earlier periods.
In light of the recent market turmoil, this issue of the report highlights trends year over year and contrasts the first three quarters of 2008 with the fourth quarter. According to the report, the fourth quarter of 2008 showed a marked deterioration of certain financial and non-financial terms for startup companies.
Key trends highlighted in the report include:
Percentage of Up, Down and Flat Rounds. Consistent with general valuation trends, the fourth quarter of 2008 saw a significant drop in the percentage of up rounds relative to the number of flat or down rounds.
Liquidation Preference. The fourth quarter brought a significant increase in the percentage of transactions with greater than 1x liquidation preferences, with the increases centered on later-stage transactions.
Percentage of Deals with Fully Participating Preferred. The data did not show any change in the percentage of transactions with full participation, a sign that investors have thus far chosen to manage the tougher economic climate through valuation reductions and greater liquidation preferences rather than increased use of full participation.
“The broader economic slowdown that accelerated in the latter part of 2008 had an immediate impact on emerging company finances and valuations,” said Jim Fulton, head of Cooley’s Emerging Companies practice. “Valuations will continue to face pressures until the economy improves.”
Cooley's Private Company Financings Report is published approximately every quarter and is based on private company transactions in which the firm served as counsel to either the issuing company or the investors. A complete version of the report is available here.
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