News was released today by VentureOne (owned by Dow Jones), which tracks venture investment data. Venture-backed companies are now getting pre-money valuations (pre-money means the value of the company before the capital is invested) that are the highest they’ve been since the peak of the last bubble in 2000.
Median pre-money valuation of U.S. VC-backed companies reached $18.5 million in 2006 (vs. $15 million in 2005). At it’s peak in 2000, the median valuation was $25.1 million. Sounds like valuations are inching back again. I’m not sure if this is good news or bad news.
Of course, for early-stage startups the information that is much more relevant is what the valuations were for first-round companies. In this case, the pre-money valuation was $6.2 million vs. the $5.9 million in 2005.
“That’s all fine and dandy,” you’re thinking, “but what does that mean for me?”. Well, that depends.
For most entrepreneurs, you’re probably not raising venture money – and for those that are, you’re probably not going to succeed in raising it. Nothing against you or your company (I don’t know you, and don’t know your company), but the numbers are working against you.
So, the question is, if you are not raising money does it help you or hurt you that VC valuations are up? I find this to be an interesting question. First, I am going to guess (because it happens to be true in my case), that when VC valuations are up, the price other types of investors are willing to pay (such as angel investors) are up too. For many of us, that’s good news. Also, VC valuations can be seen as a proxy for the overall boisterousness (uncanny, I thought I had just made that word up, but it passed the spell-checker) of the market.
Overall, for no particularly rational reason, I generally feel that the rise of VC valuations (even though I’m not raising VC money) is a good thing for startups. There’s a small part of me that thinks that since general “market prices” are rising for startups, my startup is worth more too. But, I could be totally delusional and uninformed.
What do you think?