Q2 Venture Economy Looking Up

Mike Patrick and Barry Kramer at the Bay Area law firm of Fenwick & West have been collecting venture finance data since the beginning of 2002. They report their detailed findings quarterly. Here's the link if you're interested in having their quarterly survey emailed to you directly. Based upon the 94 venture financings they tracked in the second quarter of 2003, Mike and Barry conclude:

The terms of venture financings improved somewhat in the second quarter of 2003.  The percentage of financings that were down rounds decreased (although we note that a majority of financings were still down), the percentage of Series A financings increased, and the other terms of financings were generally less tough than in Q1 ’03. 

Consistent with this trend, we note that various industry publications have also reported an improvement in the venture financing environment, showing an average 7% increase in the number of financings from Q1 to Q2 ’03 and an average 10% increase in the amounts invested over the same period.

There are a couple statistics that I find particularly encouraging as an early stage venture investor. First of all, a greater number of early stage companies are getting funded than in recent quarters. Last quarter a full fifth of the financings were Series A rounds and another 24% were Series B financings. That's the largest percentage of Series A deals in as long as Mike and Barry have been tracking the statistics. Equally encouraging for VCs and entrepreneurs alike is the fact that the number of up rounds (financings that got done at a higher price than the last round) increased dramatically from the previous three quarters. In Q2 2003, 40% of those rounds that got done were at an increased price (the percentage ranged from 20% to 26% for the previous three quarters). Moreover, only 26% of the Series B financings that got done last quarter were down rounds.

That's great news and a pretty solid indicator that the venture economy is on the mend. Let's hope for a continuation of those trends in the second half of 2003.