As 2020 comes to a close, some parts of the startup world are completing a loop, ending the year where they began.
Startup valuations, for example, as seen in the Silicon Valley area are effectively back to where they were at the start of the year. According to a report from Fenwick & West examining data through October in the San Francisco Bay area, the percentage of startups that raised up rounds (rounds priced higher than preceding investments) came within spitting distance of its pre-COVID levels.
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There are other positive signs in the data for startup bulls.
Median and average price increases for startup valuations in the Valley have both crested their 2019 averages. The gains have proven especially sharp amongst software startups, which managed somewhat epic valuation gains in October; Fenwick’s data, something we’ve covered before on The Exchange, lags the calendar month somewhat.
This morning, let’s take a break from IPOs to look at startup health in the region still generally heralded as its promised land.
Revenge of the bulls
As optimism for business conditions — tech-focused startups in particular — improved in Q3, startup valuations kicked off Q4 on a strong note.
In October, Silicon Valley startup investments that were priced up from their preceding deal rose to 79%. That’s down from what Fenwick reports as 2019’s average, but a dip from 83% to 79% is not much. Notably, startups in the region managed to reach an up-round percentage of rounds in the mid-to-high-seventies over the summer, but during those months down rounds were 11% to 17% of the total.To contrast, down-rounds fell to just 4% of all Silicon Valley venture rounds in October. So, up-rounds are at their post-February high as down rounds set what is at least a 12-month low. That’s bullish.
Those up rounds are driving huge valuation gains. October was the first month since the start of the pandemic in which the average and median price increases amongst Silicon Valley startups bested their 2019 levels.
In October, an average startup valuation gain of 101% was above 2019’s 93% result. On a median basis, October brought the area’s startups a 73% gain, better than 2019’s 60% result.
In May, the month that saw valuation gains reach their nadir, average valuation gains were just 43%, while median gains were a paltry 17% amongst Silicon Valley startups.
Software
Fenwick’s data, then, shows not merely a recovery of its region’s startup population. It shows that, from some angles, enthusiasm for startup shares is now hotter than it was in 2019.
This appears to be doubly true amongst software startups. The Exchange has tracked epic gains in public software company valuations during 2020. Now, after a drop during the May period, big valuation gains are not merely back for software startups, they have pulled ahead of their historical 2019 performance.
In October, Fenwick reports that Silicon Valley software companies saw an average valuation gain of 140%. On a median basis it was 83%. Or, half of software startups in the region that raised money in October saw a valuation gain of 83% or better. Both figures are ahead of their 2019 results, namely 101% average gains, which fell to 74% on a median basis.
Some troubling signs
But while things are good, not all data from the report is positive. Series A round volume in Silicon Valley fell to their year-low, internet and new media startups saw their valuation gains came in under 2019 levels in October, and Series C valuation gains have underperformed all year, managing just 50% and 65% average gains in September and October. It was 112% across 2019.
You can find weak spots. But the public market changes we’ve discussed ad nauseum this year are showing up in private data. And the changes to the venture capital market — the faster rounds at higher prices — appear real, albeit from a particular geographic slice of the broader startup market.
Of course, we’ll get November and December data in time, but given how things have felt since October, I have a suspicion that we’ll see similarly strong results from those future reports.
2020 is ending better than we might have hoped.
In public and private markets, cloud earnings and valuations heat up
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