VC firms favor later-stage companies

November 19, 2009

No big surprises here.  The valuations of venture-backed companies held steady in the third quarter, as the prices set in first funding rounds dropped to a six-year quarterly low while later-stage valuations continued to climb.

According to Dow Jones VentureSource, the median valuation of U.S. companies raising money in the third quarter was $18 million, the same price as in the second quarter, after falling from $24 million in the first quarter. For the first nine months of the year, the median price sat at $19 million, a bit below the 2008 level of $20 million, which was a decade high.

For first rounds, the median valuation was cut in half to $4 million after rising to $8 million in the second quarter. Although it’s just a three-month slice, this could signal that venture capital firms are putting less money to work in younger companies.  With the average investment holding period for early stage venture investments climbing above 7 years, it’s no surprise that venture firms are tending to invest more in companies with proven business models and validated markets.

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