Venture Financing Report – Q1 2019 – Deal Volumes and Valuations Decrease Slightly in the New Year

In the first quarter of 2019, deal volumes and aggregate dollars raised decreased from the historical highs of the final quarters of 2018. In Q1 2019, Cooley handled 232 disclosable deals representing more than $5.1 billion of invested capital.

During Q1, median pre-money valuations also declined across all deal stages from prior quarters. Despite this decrease, valuations remain robust when compared to levels over the last several years. Transactions with a median pre-money valuation greater than $100 million rose to 27% of deals. As another signal of the strong financing environment, the percentage of up rounds reached 89% of all deals – a level not seen since Q3 2015.

Deal terms continued to favor companies. In Q1, the percentage of deals using full participating liquidation preferences decreased to 8% of transactions. Cooley also saw a decrease in the percentage of deals involving pay-to-play provisions.

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Commentary from Lux Capital’s Zack Schildhorn

On the current market: “It’s an ebullient time with plenty of cash in the ecosystem, rising valuations and – importantly – a huge wave of liquidity.”

On the future: “It feels like a gold rush mentality amongst investors right now, who are willing to fund pretty much anything that moves. What matters is how long that lasts, and it certainly can’t last forever.”

On Lux’s strategy: “Our preference is to invest in areas where we can maintain some price discipline. This means pursuing ideas that may be unpopular or outside others’ domains or, in some cases, ideating and funding companies at inception.”

On the proliferation of venture capital: “It’s not just a great time to be an entrepreneur, but a great time to be a new GP, in that you’re seeing thousands of new firms get started with individual partners from larger organizations branching off on their own or angel investors starting to institutionalize.”

Read Cooley's full interview with Zack Schildhorn on Cooley GO.

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