Now its the time to raise money
Filed in archive Venture Capital by tj on December 06, 2005

"The recent rise in valuations is due in part to the rise in prices in liquidity for venture-backed companies, particularly for M&A transactions," said Josh Grove, research analyst at VentureOne. In the third quarter of this year, the median amount paid for a venture-backed information technology company in a merger or acquisition was $59.5 million, the highest it has been since 2000, and about $25 million more than companies were paying a year ago.If you want to hear my prediction - valuations will go up even further. Very simple reasoning:
While the current median valuation figure still sits well below the mark at the peak of the high-tech bubble - $29.8 million in the first quarter of 2000 - it reflects a significant increase from $9.1 million in the second quarter of 2003 during the downturn.
The difference between the valuations of 2005 and those of five years ago, Grove said, is that later-stage investments, rather than deals with young start-ups, are fueling the increase."
A) Assume that the number of VC firms and partners stayed pretty stable through the last 2-3 years
B) Assume that the number of deals per partner is fixed and can't be increased as easily as due diligence and supervision would lack
C) Assume that it is a long term thing to bring in new partners and even worse change the coporate structure and attitude to change a VC firm into a corporation (which VC firm has a CFO?)
Now assume my assumptions are right - VC funds investinging in Series A, B, C have been oversubscribed and have raised more money as expected.
What do you think happens? All this money goes into the same number of companies (see B) - so valuations go up until a point is reached where this high valuations are not justified even more and ROI goes south. Only then we'll see valuations sink (often drastically).
Agree?
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