The first three months of 2014 were heady ones for Silicon Valley companies raising venture capital, says the latest survey from law firm Fenwick & West LLP.

Just 8% of financings were down rounds in which a company’s valuation fell, while 76% were up rounds. In the rest, the valuation stayed the same. The difference between the rate of up rounds and down rounds was the greatest since the second quarter of 2007, when the difference was 70 percentage points.

Fenwick & West also found that the average valuation increase was 85%, up from 57% in the fourth quarter of 2013. The median increase was 52%, up from 27% in the prior quarter and the largest since the law firm began calculating median price increases in 2004.

The results, based on 156 financings for Silicon Valley-based technology and life sciences companies, are further evidence that valuations of venture-backed companies are approaching levels not seen since the dot-com bubble.

What happens next is on the mind of everyone in the venture industry as they contemplate the significance of the recent drop in publicly traded technology stocks. U.S. stocks overall registered their biggest decline in five weeks on Thursday. Small-cap stocks have been hit especially hard.

Internet/digital media and software led the way with median price increases of 78% and 72%, respectively, the Fenwick & West survey said. It also found that the use of senior liquidation preference, a deal term intended to protect investors, fell for the third quarter in a row as companies exercised their leverage over venture backers.

Author: Russ Garland Publisher: WSJ URL: