Cooley Godward’s second quarter report on private company financings shows a higher percentage of up rounds compared to the first quarter of 2009 and fewer transactions with pay-to-play provisions.
However, 56 percent of deals were still flat or down rounds, and a significant number of deals include “more onerous terms.”
These include greater than 1x liquidation preferences for holders of preferred stock, especially in later rounds; a return to the use of drag-along rights so majority shareholders can force other shareholders to sell their stock in a given deal; broad-based anti-dilution protection to allow shareholders to keep a constant share of equity; and redemption provisions, especially outside of Northern California.
The report also notes that valuations and transaction volumes this year are both down significantly from a year ago.
Nevertheless, Cooley Godward says its data “reveals early signs of potential improvement.”
Download the report here: