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Things heating up in VC-land

You can tell from the relaxed manner of venture capitalists at recent Christmas bashes -- things are getting better. The Woodside Fund brought out the big wines, Duckhorn and Caymus. Doll Capital Management, fresh from its hit with Chinese job site, 51Job, rented out the grand Asian Art Museum in San Francisco, offering an open bar and lavish food. Not to be outdone, Mayfield rented out the Computer History Museum last night, serving equally quality nosh. We bumped into Mayfield partner Kevin Fong who, while sipping at a cocktail, explained how much better things are this year than the past couple.

With things picking up, though, it means competition among VCs for the good deals is increasing. VCs start paying more money to entrepreneurs in return for their ownership stakes -- driving up valuations. Here's the latest from VentureOne:

Valuations of U.S. venture-backed companies increased for the fifth consecutive quarter, reaching $13 million overall in the third quarter of 2004, according to VentureOne, a unit of Dow Jones Newswires. This is the highest overall median premoney valuation since 2001, and an increase from the $11 million median posted in the third quarter of 2003.

Reflecting the increased level of early-stage investing, companies receiving a first round of financing in the third quarter had median premoney valuations of $6.3 million, the highest level for that round class since the fourth quarter of 2002, and on par with 1998 levels. Meanwhile, the median valuation for second and later rounds declined slightly from last quarter, but showed an increase over the third quarter of 2003-reaching $12.5 million and $24.3 million, respectively.

„Having divested of older portfolio companies through IPO or M&A and/or raised new funds, many investors returned to company-formation investments this quarter and are seeing strong value in both health-care and information-technology startupsš said John Gabbert, vice president of worldwide research for VentureOne. „However, whereas valuations for later-stage health-care companies jumped with the opening of the IPO window late last year, we are perhaps now experiencing a similar phenomenon with information technology as the combination of improved access to the public markets and higher prices being paid for acquisitions provides greater liquidity opportunities for IT companies and their investors.š



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