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Series A rounds struggle despite best quarter for venture investment since 2001

19 May 2014

news_thumbsdown_lrgVenture capital investment’s best quarter in dollar terms since 2001 still saw Series A investment fall to a five-quarter low, new research shows.

More than $10bn was invested by venture firms into US companies in the first quarter according to law firm Fenwick & West’s latest report, which aggregated results from a trio of surveys by Dow Jones, the National Venture Capital Association and CB Insights.

While late-stage investment was “particularly strong” at 47 per cent of those dollars according to the report, Series A investment fell to 15 per cent of the total.

It said valuations of later-stage deals were also particularly strong in the quarter, with 11 venture-backed companies raising funds at a valuation of more than $1bn for the first time – more than did so across the whole of 2013.

F&W said one of the reasons for the increased valuations in late stage financings was the rise in participation of non-venture capital investors such as hedge funds, mutual funds, public venture funds and private equity funds.

The report cited VentureSource as saying the number of US venture-backed IPOs hit its highest level since 2000 in the quarter, with 38 exits raising $2.9bn.

That was a 60 per cent increase from the 24 reported in the last quarter of 2013, but a 45 per cent decline in dollars raised.

F&W said, “An interesting IPO trend is a possible rebound/increase in venture backed foreign companies choosing to go public in the US, as evidenced by the recent IPO of Weibo, and the filing for a U.S. listing by Alibaba.

“While a large part of the attraction of US markets is their depth and transparency, it is also their acceptance of dual classes of stock and super voting shares, and their willingness to not require that a company be profitable, that has mattered to foreign companies.

“In an interesting twist, one of the justifications for US exchanges having looser standards is the presence of an active plaintiffs bar to police the actions of companies and their controlling persons, allowing the government and exchanges to regulate less.”

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