Things aren’t quite as hot in startup land as they were this summer, with valuations taking a a slight hit across various stages during the third quarter, according to a new report out this week from Wilson Sonsini Goodrich & Rosati. Nonetheless, as you can see in the chart above, valuations remain much stronger than in 2010 or 2011.
“As might be expected, there have been significant fluctuations in pre-money valuations over this multiyear period, including a dramatic decline in valuations during late 2008 through early 2009 and a return to earlier levels in mid-2010, most likely correlating to the financial crisis and its aftermath,” the authors of the report write. “Since late 2011, however, there has been a substantial and broad-based increase in valuations, and they currently are significantly higher than at any other time in the last five years.”
The authors of the report said it remains a “favorable time” to be an entrepreneur, with changes in the way deals are structured adding to the founder-friendly terms for startup founders.
“The buzz in the start-up environment has become more founder-favorable in recent years, with a number of prominent investors (many of whom were successful founders themselves) strongly espousing founders’ rights and interests, both for the companies in which they invest and across the start-up community generally,” they said. “Not all founders benefit from this attitude, but some, especially those who have founded successful companies before, can.”
Meanwhile, “up rounds” are still getting done, meaning that startups are raising rounds at higher valuations than previous rounds. Seventy three percent of deals were “up rounds,” compared to 77 percent of all rounds in the second quarter. That compares to less than 50 percent three years ago. It is worth noting that the statistics in the report are based solely on venture financing transactions in which Wilson Sonsini Goodrich & Rosati represented either the company or one or more of the investors.
[Editor's Note: Wilson Sonsini Goodrich & Rosati is a GeekWire sponsor]