Startup Valuations Reach Four-Year Peak
Sept. 15, 2005--The median value of startup companies reached its highest peak in four years, according to data released Wednesday.
Financial data firm VentureOne reported that valuations for venture-backed companies rose to $15.6 million in the second quarter of 2005, topping the $13.5 million reached the same quarter last year. This is the highest median quarterly value since 2001 when it was $17.3 million.
John Gabbert of VentureOne said companies are fetching higher prices when they are bought or go public, so-called liquidation events.
"The rise in valuations seems to be related to the increase in liquidity activity, particularly the fact that venture backed companies are being acquired at higher prices," said John Gabbert of VentureOne in a statement.
But John Taylor, director of research at the National Venture Capital Association, said that valuations are rising because fewer companies are going public.
"We're hearing that companies are having second thoughts about going public because of the costs associated with Sarbanes-Oxley compliance and other regulations," Taylor said.
According to VentureOne, health care companies had the strongest valuations at $18.1 million, a 27% increase over their $14.2 million median from last year. In general, valuations were higher for companies that have already received one or more rounds of venture capital investment.
Kirk Walden, an analyst with PricewaterhouseCoopers, has observed the same phenomenon.
"Companies attracting the most venture capital are those with significant cash flow, many of which are already profitable," said Walden.
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