Matt Marshall has a story today about Q1 VC funding metrics and valuation. According to Fenwick & West LLP, Q1 venture funding metrics are painting an optimistic picture. The headline numbers:
- 74% of transactions were "up rounds"
- The average company received a 64% higher valuation YOY
- U.S.-backed venture flows were $6 billion, up 18% YOY (from $5.1 billion)
Talk about chasing the tail...this is on the heels of a breakdown in market internals, uncertainty at the Fed, and a constrained global interest rate environment. Bottom line is this is yet another indication of their being too much capital throughout the financial supply chain.
I'm sorry but with GYM and friends on an M&A binge (but buying companies at much earlier stages) and yet VC fund raising continuing apace, I can't help but wonder if this 64% valuation increase isn't a byproduct of putting money into earlier vintages where the end game for a profitable exit becomes increasingly less clear.
Ultimately the founders and executives running venture-backed firms have to take as much responsibility for accepting more money than they need (a hard thing to accept when it's offered to you at attractive terms); but interesting nonetheless when you consider the bootstrapped Web 2.0 companies that are now getting flooded with cash despite uncertain business models. Maybe that's the answer...entrepreneurs are so emboldened by the recent exits of other startups and the relatively manageable costs of operating in a web-centric model that VCs feel the need to offer more favorable terms to keep their place in the ownership chain.
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