Venture Bubble? Not Really

The latest VentureOne VC funding statistics are out, and the headline is “Valuations Reach Highest Level Since Bubble”. The nut:

According to industry tracker VentureOne, the median pre-money valuation for venture-backed companies in the U.S. was $20 million for the half, compared with $15 million for all of 2005. The last time the median figure reached over $20 million for the year was in 2000, when it hit a lofty $29 million.

Whoa, sounds scary, like the bubble is back. Those are big increases, and serious steps back toward bubble numbers.

Or is it? Because the reported figured is the all-round median, not the mean, not the mode, and it’s not broken out by round. What really matters in venture, arguably, is per-round valuations. So here they are, from the very end of the piece:

Valuations for second, later and restart rounds all were above last year. Second rounds in particular saw strong upward pricing pressure and the median valuation for the half was $20 million compared with $12.5 million in 2005. First round prices stayed steady at $6 million.

Get that? First-round valuations, the place where bubbles are born, were flat in the quarter. Nothing changed. It is later rounds where valuations are going up, which can be read as a positive sign: Business are delivering results, and investors are paying up for those results. I’m hard-pressed to see why that’s a bad thing.


  1. Dan Primack says:

    Or… more VC firms are doing later-stage deals because they’re scared of risk. This has created an expansion-stage glut, therefore artificially pumping up Series B/C valuations.

  2. Brent Buckner says:

    It seems to me that the Netscape IPO goes against the notion that “the place where bubbles are born” is first-round valuations.

  3. Every GP I deal with is preaching the mantra of better irrs and lower risk by investing in later rounds at the expense of earlier ones. I’m also somewhat skeptical of the notion that higher valuations in later financings are based soley on results … still too much money chasing deals and not enough exits to conclusively make that case.

  4. What was the median first round valuation in 2000? The article could have a point if the median first round then was also $6mm.

  5. The percentage of companies that raise first rounds but are not able to raise second rounds is very low because few companies look like run away successes or total failures at this point. Thus, a 60% jump in second round valuation looks more like the result of bloated funds than businesses delivering results to me.