Silicon Valley Private Company Up Rounds Exceed Down Rounds in 3Q

Facebook shares rose almost 13% on Wednesday despite the expiration of lockup provisions on a boatload of about 800 million venture and management owned shares. Still, the stock is down 42% from its May IPO price.

Private company valuations in Silicon Valley may be taking a cue from this mixed-message trading. Up rounds exceeded down rounds again by a healthy margin in the third quarter. But the enthusiasm wasn’t as full throated as the preceding three months.

This observation comes from Fenwick & West’s quarterly study of private company valuation trends in Silicon Valley. The law firm examined 117 financings it handled during the period and found up rounds exceeded down rounds by 61% to 17%. The remaining deals were flat.

This wasn’t quite as ebullient as the second quarter, when 74% of deals had higher valuations and 11% had lower ones. However it was the thirteenth quarter in a row with up rounds exceeding down rounds.

The best performing industries were software and Internet, or digial media, the study found. The life sciences industry lagged, hardware was soft and cleantech was encouraging on low volume.

Series B rounds stood out as particularly strong: 92% rose in value. Almost two thirds of Series B companies were software and Internet, or digital media, companies. Series E and later deals were weak. Only 44% were up in value and only 39% were software and Internet, or digital media.

Fenwick & West said its “Venture Capital Barometer” showed an average price increase during the third quarter of 78%, which was down from 99% in the second quarter. The median price increase was 23%.

The third quarter gain in the average increase was underpinned by three financings up over 750%. Two were Internet, or digital media, companies and one was in the hardware space. (The law firm declined to identify the startups.) Without these deals, the barometer was up 50%.

Overall, a strong quarter, perhaps paralleling yesterday’s rise in Facebook shares. But still a decline in sentiment from the second quarter, which could reflect the decline Facebook shares still show from their IPO price.

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