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Valuations of venture-backed companies hit five-year high


Valuations up
The median valuation of U.S. based venture-backed companies has climbed to $18.4 million in the first quarter, or $3 million more than the same quarter a year ago.

But this isn't necessarily a sign of a bubble. Valuations of early stage companies aren't that high compared to previous years -- and so it is not quite the frenzy in Silicon Valley that some people say it it is.

In Europe, valuations also increased, to 6.1 million euros, according to a survey to be released tomorrow by Dow Jones VentureOne.

The first quarter data, representing the value of companies set by venture capitalists before they invest their money, shows levels at their highest in more than five years. But the rise was caused by increased later-stage investing in information technology and healthcare, Dow Jones said in a statement. Later-stage companies tend to have higher valuations because they are more advanced. (Update: See the Dow Jones press release, which also says merger and acquisition activity has helped boost valuations.)

Valuations haven't been this high since the fourth quarter of 2000, when it was $23 million.

Still, even if there is no sign of a bubble yet, it's a good idea to ask for a decent valuation if you are an entrepreneur out raising cash from venture capitalists. We were at a brunch today where the buzz among Silicon Valley investors was that it is so crazy out there that they are losing companies to other investors if they don't make immediate offers. Things seem hot -- but it seems limited to Web 2.0 land.

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Your explanation is not clear, so it's hard to see if it supports your conclusion or not. I suspect this valuation is due to companies taking an additional round rather than going public right now. This would be consistent with this $18.4MM being the _median_ (not mean) value. If so, then I agree it's not a sign of a bubble. But on the other hand it doesn't imply that A or B stage valuations are any higher.

DV Henkel-Wallace on June 5, 2006 12:44 AM
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Apologies for any confusion. I'd been waiting for DJ to give me the thumbs up on releasing the press release. It is now there in the post, in an update.

Matt Marshall on June 5, 2006 5:38 AM
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Any idea on what Web 2.0 company pre-money valuations are like? Your download document does not track that.

Pran Kurup on June 5, 2006 2:43 PM
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What seems to be one of the key drivers of rising late-stage valuations is simply company maturity or, specifically, the age of the company. Evaluation of the Dow Jones VentureOne data shows that the median age of these later stage companies has also increased from 4.35 years in the year 2002 to 5.76 years in 2005. This 32 percent increase in the median age of the companies is largely driven by the lengthening time to liquidity for private venture-backed companies.

Rob-Bridgescale on June 5, 2006 4:40 PM
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