Venture deals in 1Q of 2011 were big money… but they were also small volume: PwC’s MoneyTree report shows 736 deals (a decrease of 6.5% from 1Q 2010) with a value of almost $5.9 billion (a jump of 14% over the same timeframe). What is most impressive is the sheer scale: fourteen different companies secured venture rounds of $50M or more, while another four brought in over $100M each.
Many of these deals would be barely recognizable to anyone used to the traditional venture paradigm of funding garage companies: the deals that have dominated the media tend to be later-stage firms with considerable revenue and cash flow, and whose poster child is Groupon – which in about 18 months has grown from an idea to within spitting range of $1 billion in revenue, and has an ability to generate cash rarely seen outside a casino.
The companies driving much of the excitement are far more stable financially than a generation ago, with both revenues and earnings (and a lack of sock puppets). The Economist examines the forthcoming IPO boom of many of these firms and compares this internet rush to the earlier bubble, but also identifies many of the differences: the ease and lowered expense of starting a company; a surge of smaller, angel-type investments; and the ability for other countries to help drive some of the growth.
Law firm Cooley Goddard also released their 2010 Venture Financing Report, which saw the previous year as one of slow recovery, but also witnessed many of the same trends. The number and percentage of deals with pre-money valuations in excess of $100 million saw the most growth, with 51 deals (13%), up from 28 deals (7%) in 2009. And clearly correlated, later-stage deals saw the biggest bump in valuation, as Series C pre-money valuation averaged $45M (from $30M a year ago), and Series D or later a pre-money of $80M (up from $45M). Amazingly, in Q4, pre-money valuation for Series D deals was an astounding $166M.
But as things change, they also stay the same. Silicon Valley Bank recently released Startup Outlook 2011, survey of early-stage technology companies. The top challenge for these executives – consistent across all respondents — was access to equity financing. Particularly for emerging companies looking for smaller rounds, this should surprise no one. And hey, it’s why we are here.