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The Value of Venture Capital Deals Fell 23% in 2016

By ValueWalk
Venture Capital


Venture Capital

Venture financing deals collapsed by some 21% during 2016 according to law firm Cooley’s end of year and fourth quarter Venture Financing Report.

The report, a copy of which has been reviewed by ValueWalk, reveals that during 2016 Cooley’s handled a total of 710 disclosable deals representing over $11 billion in capital. In comparison, during 2015 the firm handled 602 transactions representing over $14 billion of capital.

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During the fourth quarter of 2016, Cooley handled 187 disclosable deals representing more than $2.7 billion of invested capital while deal volume increased 18% year-on-year. Total proceeds invested declined 23% year-on-year.

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Cooley’s quarterly Venture Financing Report provides data reflecting the firm’s experience in venture capital financing terms and trends. The data is compiled by Cooley’s 900 lawyers across 12 offices around the world, which solve legal issues for entrepreneurs, investors, financial institutions and established companies. The information is taken from a subset of the transactions in which Cooley served as counsel to either the issuing company or investors — so the data can be relied upon to be an accurate reflection of the environment in the venture capital world.

One really notable piece of information from the quarterly report is the sudden, sharp decline in the median pre-money valuation’s four Series D or higher financings conducted during the fourth quarter of 2016. After falling from a 12 month high of around $400 million during the third quarter of 2015, to a low of around $150 million during the second quarter of 2016, the median pre-money valuation spiked to just under $500 million during the third quarter of 2016 but then collapsed back to $300 million during the fourth quarter. The median pre-money valuation of Series C financing is also collapsed by around 50% between the second quarter and fourth quarter of 2016. Interestingly, the decline in the median value of Series D or higher financings came despite the fact the number of deals, as a percentage of total capital raised, increased.

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Over the course of the past two years, the median pre-money valuation for seed-stage financings was $6 million, and the median deal size was approximately $2 million.

Another takeaway from the data is that although the percentage of overall deals with valuations of $100+ million showed a slight increase when broken out by industry, the percentage of these larger deals differs greatly between life sciences and technology. For life sciences deals, the percentage of transactions with a valuation of $100+ million decreased from 22% in Q3 to 4% in Q4. Technology deals with these valuations slightly increased from 16% in Q3 to 18% in Q4.

This article was originally published in ValueWalk.

Photo: marc falardeau

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