2016 Fund Raising Environment: Valuation Corrections

March 29, 2016 at 10:11 am Leave a comment

Having worked with thousands of private VC backed companies since 1987, The Brenner Group (TBG) has seen all the cycles imaginable over the past 30 years. Feels like we are in one now: a tough financing cycle where valuations are under pressure and institutional capital from top-tier VCs is much harder to come by than just a few short months ago.

Valuations are down, unless…
Valuations are down as much as 50% over valuations just a quarter ago. If you raised $$ in Q4, congratulate yourself because investors are driving much tougher bargains in 2016. If you are raising capital now, be prepared for much reduced valuations. This downward pressure is a natural by-product of a turbulent equity market, zero IPO window, and significantly reduced values associated with the biggest private VC backed companies. These valuation drops are exacerbated when operating results fall short, even a little.

Two of the most dramatic examples are Jawbone and Gilt Groupe, both of whom felt the pain recently. Jawbone just closed a down round off more than 50% in which its valuation dropped from over $3B to $1.5B. More tellingly, Gilt, the high-flying retail site, sold to Hudson Bay Co. for $250M after its last funding round post-money valuation clocked in at over $1B. Ouch. A telling strategic move for a once high flyer.

Conversely, Looker, Inc., a rapidly growing (ARR is more than doubling every year)  enterprise analytics company, just closed an oversubscribed $48M Series C with an eager KPCB as the lead, and received a favorable valuation uptick in the process. While it’s not a unicorn yet, the Looker financing proves that growth capital is readily available from A-list sources for the right company.

Advice for young companies
If you are pre-revenue, be prepared for tough negotiations regarding valuation and availability of capital from A-list VCs. If you are later stage (Series B and later), make sure the critical pieces are in place for mezzanine support: annual revenue doubling or better, happy customers, differentiated and defensible product, strong management team, good controls and operational execution, on a path to profitability—to name a few. These attributes have been around forever and are always in vogue with institutional investors, but more so now than ever given the corrections that are happening in valuations and a decidedly tougher venture financing environment.

J. Weston (Wes) Rose is Senior Vice president of The Brenner Group, one of Silicon Valley’s premier professional services firms. Wes has enjoyed an extensive career as a C-level operating executive with multiple venture capital backed technology companies and now runs the firm’s interim management and restructuring practices, and corporate marketing.
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Entry filed under: Executive Search, Financial Advisory, Interim Management, Restructurings, Shareholder Services, Valuations.

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