Valuations Overall Hold Steady, Though First Round Prices Plummet
By Scott Austin, Dow Jones VentureWire 11/18/2009

Valuations of venture-backed companies held steady in the third quarter, as first-round prices dropped to a six-year quarterly low while later-stage valuations continue to climb.

According to Dow Jones VentureSource, the median valuation of U.S. companies was $18 million, the same price as in the second quarter, after falling from $24 million in the first quarter. For the first nine months of the year, the median price sits at $19 million, a bit below the 2008 level of $20 million, which was a decade high.

For first rounds, the median valuation was cut in half to $4 million after rising to $8 million in the second quarter. Although it’s just a three-month slice, this could signal that venture capital firms are putting less money to work in younger companies.

The median second-round valuation in the third quarter rose to $18.8 million, up from $15.5 million in the second quarter and more than twice as high as the first quarter. Deals that are third rounds or higher commanded a median valuation of $36.3 million, slightly higher than the $35.8 million in the second quarter and $34 million in the first.

For the nine months, first-round valuations were $5.75 million, versus $6 million in 2008; second-round prices reached $15.3 million, less than the $18 million last year; and later-stage deals were valued at a median $35.7 million, which is significantly down from $50.3 million in 2008.

By sector, the business and financial services category is tracking at $12.5 million for the year, versus $16 million a year ago. Median valuations of energy and utilities companies were $26.2 million, up from $20 million last year and on track to be the highest this decade. Health care valuations sat at $21.6 million so far for the year, slightly below the $23.1 million from 2008. And the largest sector, information technology, recorded an $18 million median valuation, off pace from the $21.9 million recorded last year.