I just received the Fenwick & West Silicon Valley VC Survey for Q4 2009.

Although this survey does not exactly equate to what happened in Utah, Silicon Valley certainly sets the standard and establishes the trend for venture capital investing in the U.S. and in Utah.

Here are some interesting insights:

1. For the second quarter in a row, ‘up’ and ‘flat’ rounds exceeded ‘down’ rounds (interpretation: company valuations are increasing and the new investors are receiving less ownership for the same total amount invested – good news for founders and prior investors), this time 70% to 30% and the average price increase was 19% for the quarter. This is great news and portends good trends for good businesses that are looking to raise capital.
2. In the 4th Quarter series A rounds (usually the first institutional financing round) represented 23% of all financings, up from 17% in Q3 and a low of 8% in Q2. This is great news for earlier stage companies and indicates that VC’s are starting to open up to their financing needs again.
3. The survey indicates that financing terms are starting to relax (i.e., becoming less onerous) for the companies receiving capital but preferences such as participation rights and liquidation preferences are still being used in the majority of financings. In other words, it is still a ‘buyer’s market’, however, the trend continues towards a relaxing of some of the more stringent and onerous terms.
4. The total invested by venture capitalists during the quarter increased by 17% over Q3 but is still down compared to earlier years. Also, the total funds raised by VC’s during the quarter increased by 80% over Q3, however, the total raised in 2009 represents a nearly 50% decline when compared to 2008. The message here is that with less total funds to invest, fewer companies will qualify for investment in the future. As a result, the better the management team and the better they (you) understand and solve customer ‘pain’ and the better prepared they (you) are to execute on your plan, the more likely they (you) are to attract serious VC interest in the future.

If you are considering venture capital or angel investor equity investment for your business or if you would like to better understand what this information means for your situation, Contact Your Utah CFO for a free consultation.