As VC, you get a pat on your back from your colleagues for selling a company at a high price. Second best (actually way behind, but still) is raising money from new investors at a higher valuation than the one you paid: an up-round. It shows that the value of your company is on the right track, and it provides a data point to the investors in your fund (your LPs) that the value of your fund is developing well.
Before participating in a panel at Riskkapitaldagen (the PE day) the other week, I put the question out to my network in the US: “what is the climate like, these days?”. Responses were diverse but had one theme in common: it is so hard to raise new external money also for the very good companies out there, that you actually get a pat on your back for doing it almost regardless of valuation. And it was Jason Ball at Qualcomm Ventures who eventually tweeted: “The down-round is the new up-round”.
Today, Daniel sent me numbers on the valuation of new VC rounds in the US during Q4 that support this notion, but with a positive twist:
The Fenwick & West Venture Capital Barometer™ showed an average price increase of 25% for companies receiving venture capital in 4Q08 compared to such companies’ prior financing round, a significant decline from the 55% reported in 3Q08, and the lowest quarterly total since 1Q05. If Web 2.0/digital media financings are factored out the Venture Capital Barometer would have been flat (0%).
The Web 2.0 / digital media segment of the survey fares ok, with 46% up-rounds vs 39% down-rounds and the 15% balance flat, way above all other segments in the survey.