Private Company Financing Trends

From the WSGR Database: Financing Trends for 1H 2019


For purposes of the statistics and charts in this report, our database includes venture financing transactions in which Wilson Sonsini Goodrich & Rosati represented either the company or one or more of the investors.

Larger deal sizes returned in the second quarter of 2019 following a modest cooldown in Q1 2019, with Q2 2019 median valuations and amounts raised in many cases exceeding those of full-year 2018. Valuations were up across the board, with Series A, Series B, and Series C and later financings each reaching five-year highs. Median amounts raised also showed impressive growth; in particular, the median amount raised for Q2 2019 Series C and later financings was more than twice the full-year 2018 figure. The proportion of up rounds saw a healthy increase from the previous quarter, while down rounds became slightly more prevalent and flat rounds markedly less common.

Bridge loans did not reflect the same trend. Q2 median amounts raised declined from the prior quarter for each of pre- and post-Seed bridge loans. Notably, the pre-Seed median amount raised declined to $0.35 million, a low not seen since Q3 2017. More pre-Seed loans had lower interest rates than in prior years.

Up and Down Rounds

Up round financings were more prevalent in Q2 2019, increasing to 87% of all Series B and later financings in the quarter from 84% in Q1. The share of down round financings in the quarter went up slightly, to 11% in Q2 2019 from 8% in Q1 2019. Flat rounds were rare in Q2 2019, constituting just 2% of financings, down from 8% in Q1.

Valuations

The median pre-money valuation for Series Seed financings was $9.0 million in Q2 2019, an increase from $7.1 million in Q1 2019. Series A valuations climbed from $16.0 million in Q1 2019 to $26.0 million in Q2 2019, the highest figure in the last five years. The median pre-money valuation for Series B rounds increased to $85.0 million, surpassing the previous five-year quarterly high of $76.5 million in Q4 2018.

The Q2 2019 median pre-money valuation for Series C and later financings saw the largest increase, growing from $144.0 million in Q1 2019 to $255.0 million in Q2, far exceeding the 2018 full-year median of $182.5 million and marking the highest quarterly median of the last five years.

Amounts Raised

The median amount raised for Series Seed financings in Q2 2019 was $2.7 million, slightly higher than Q1's $2.0 million. The median amount raised for Series A financings doubled from $5.0 million in Q1 2019 to $10.6 million in Q2 2019. The Series B median amount raised remained stable in Q2 2019, coming in at $14.3 million, comparable to $14.8 million in Q1.

The Q2 2019 median amount raised in Series C and later financings hit a five-year high at $43.6 million, an impressive recovery from the prior quarter, which had a median of $10.5 million.

Deal Terms - Preferred

Similar to full-year 2018, 71% of post-Series A rounds used pari passu liquidation preferences in 1H 2019, with senior liquidation preferences decreasing from 31% of all such rounds in 2018 to 26% in 1H 2019, the lowest share of the past five years. The percentage of down rounds with senior liquidation preferences increased dramatically, from 36% in 2018 to 56% in 1H 2019. The percentage of down rounds with pari passu preferences fell from 64% in 2018 to 44% in 1H 2019.

The percentage of financings with no participation decreased slightly from 88% in 2018 to 86% in 1H 2019. The use of redemption rights increased, with 15% of 1H 2019 financings including redemption rights, up from 9% in 2018.

Data on deal terms such as liquidation preferences, dividends, and others are set forth in the table below. To see how the terms tracked in the table can be used in the context of a financing, we encourage you to draft a term sheet using our automated Term Sheet Generator, which is available in the Start-Ups and Venture Capital section of the firm's website at www.wsgr.com.

 

 

Private Company Financing Deal Terms (WSGR Deals)1

 

2014

2015

2016

2017

2018

1H 2019

2014

2015

2016

2017

2018

1H 2019

2014

2015

2016

2017

2018

1H 20194

All Rounds2

All Rounds2

All Rounds2

All Rounds2

All Rounds2

All Rounds2

Up Rounds3

Up Rounds3

Up Rounds3

Up Rounds3

Up Rounds3

Up Rounds3

Down Rounds3

Down Rounds3

Down Rounds3

Down Rounds3

Down Rounds3

Down Rounds3

Liquidation Preferences - Series B and Later

Senior

40%

33%

38%

35%

31%

26%

32%

31%

36%

31%

28%

22%

68%

35%

41%

63%

36%

56%

Pari Passu with Other Preferred

56%

62%

57%

62%

69%

71%

64%

66%

62%

66%

72%

74%

21%

53%

45%

38%

64%

44%

Junior

0%

1%

1%

0%

0%

0%

0%

1%

0%

0%

0%

0%

0%

0%

5%

0%

0%

0%

Complex

2%

3%

4%

3%

0%

3%

2%

1%

2%

4%

0%

4%

5%

12%

9%

0%

0%

0%

Not Applicable

3%

1%

0%

0%

0%

0%

2%

1%

0%

0%

0%

0%

5%

0%

0%

0%

0%

0%

Participating vs. Non-participating

Participating - Cap

12%

8%

9%

6%

5%

6%

14%

11%

10%

7%

5%

4%

13%

12%

22%

31%

7%

11%

Participating - No Cap

14%

11%

11%

10%

7%

8%

11%

12%

13%

11%

7%

8%

32%

35%

4%

19%

14%

33%

Non-participating

74%

81%

81%

84%

88%

86%

76%

77%

77%

82%

88%

88%

55%

53%

74%

50%

79%

56%

Dividends

Yes, Cumulative

13%

3%

6%

7%

7%

5%

11%

3%

7%

9%

9%

7%

24%

24%

22%

13%

23%

11%

Yes, Non-cumulative

72%

82%

73%

78%

61%

62%

74%

86%

78%

78%

62%

69%

71%

76%

70%

81%

69%

89%

None

15%

15%

21%

16%

32%

33%

15%

11%

15%

13%

29%

24%

5%

0%

9%

6%

8%

0%

Anti-dilution Provisions

Weighted Average - Broad

85%

80%

92%

94%

94%

93%

90%

86%

92%

96%

94%

100%

92%

75%

91%

100%

100%

78%

Weighted Average - Narrow

9%

13%

1%

2%

2%

0%

6%

12%

1%

1%

3%

0%

5%

19%

0%

0%

0%

11%

Ratchet

1%

1%

1%

0%

0%

1%

1%

1%

2%

0%

0%

0%

0%

0%

0%

0%

0%

11%

Other (Including Blend)

1%

1%

3%

1%

1%

1%

1%

1%

3%

1%

1%

0%

0%

0%

9%

0%

0%

0%

None

4%

5%

3%

3%

3%

4%

2%

1%

2%

1%

2%

0%

3%

6%

0%

0%

0%

0%

Pay to Play - Series B and Later

Applicable to This Financing

4%

5%

5%

2%

4%

1%

1%

3%

3%

2%

1%

0%

16%

18%

9%

6%

0%

11%

Applicable to Future Financings

0%

1%

1%

0%

1%

0%

0%

0%

1%

0%

1%

0%

0%

12%

0%

0%

0%

0%

None

96%

94%

94%

98%

95%

99%

99%

97%

96%

98%

97%

100%

84%

71%

91%

94%

100%

89%

Redemption

Investor Option

17%

13%

11%

12%

8%

12%

22%

19%

20%

19%

10%

15%

24%

12%

9%

20%

14%

44%

Mandatory

3%

2%

2%

7%

1%

3%

3%

3%

3%

9%

3%

4%

3%

0%

0%

0%

0%

0%

None

80%

85%

87%

81%

91%

85%

75%

78%

77%

72%

87%

80%

74%

88%

91%

80%

86%

56%


1 We based this analysis on deals having an initial closing in the period to ensure that the data clearly reflects current trends. Please note that the numbers do not always add up to 100% due to rounding.
2 Includes flat rounds and, unless otherwise indicated, Series A rounds.
3 Note that the All Rounds metrics include flat rounds and, in certain cases, Series A financings as well. Consequently, metrics in the All Rounds column may be outside the ranges bounded by the Up Rounds and Down Rounds columns, which will not include such transactions.
 

Bridge Loans

The median amount raised in pre-Seed bridges declined from $0.71 million in Q1 2019 to $0.35 million in Q2. The median amount raised in post-Seed bridges also decreased, from $2.00 million in Q1 2019 to $1.50 million in Q2, matching the median of full-year 2018.

Deal Terms – Bridge Loans

The percentage of pre-Seed loans with maturity periods of 12 or more months increased to 95% in 1H 2019 from 80% in 2018, while the proportion of higher-interest rate loans (at least 8%) fell sharply to 15% in 1H 2019 from 33% in 2018. The percentage of pre-Seed bridge loans subordinated to other debt dipped from 23% in 2018 to 20% in 1H 2019. The number of pre-Seed bridge loans that are convertible to equity at discounted prices increased modestly from 83% in 2018 to 89% in 1H 2019, and the number of such convertible loans receiving a discount rate of 20% or more on conversion also increased, from 77% in 2018 to 87% in 1H 2019.

The percentage of post-Seed loans with maturity periods of 12 or more months decreased from 79% in 2018 to 70% in 1H 2019, with 38% of loans having interest rates of at least 8%, as compared to 35% in 2018. The percentage of post-Seed bridge loans subordinated to other debt increased from 47% in 2018 to 59% in 1H 2019. Fewer post-Seed bridge financings had warrants in 1H 2019 than in 2018, decreasing slightly from 18% in 2018 to 15% in 1H 2019, most of which (80%) had warrant coverage of less than 25%. The percentage of post-Seed bridge loans that are convertible to equity ticked up from 87% in 2018 to 94% in 1H 2019 and 44% of those loans were subject to a price cap in 1H 2019, compared to 25% in 2018.

 

Bridge Loans – Deal Terms (WSGR Deals)1

Bridge Loans       

2014
Pre-Series
A

2015
Pre-Series
A

2016
Pre-Series
A

2017
Pre-Series
A

2018
Pre-Series
A

1H 2019
Pre-Series
A

2014
Post-Series
A

2015
Post-Series
A

2016
Post-Series
A

2017
Post-Series
A

2018
Post-Series
A

1H 2019
Post-Series
A

Interest rate less than 8%

72%

74%

76%

75%

67%

85%

43%

54%

52%

56%

65%

62%

Interest rate at 8%

22%

19%

19%

17%

22%

5%

42%

33%

30%

27%

25%

26%

Interest rate greater than 8%

6%

7%

5%

8%

11%

10%

15%

13%

17%

17%

10%

12%

Maturity less than 12 months

12%

17%

17%

22%

21%

5%

24%

34%

29%

41%

21%

30%

Maturity at 12 months

16%

9%

5%

8%

13%

10%

39%

8%

23%

19%

26%

15%

Maturity more than 12 months

71%

74%

78%

69%

67%

85%

37%

58%

49%

41%

53%

55%

Debt is subordinated to other debt

22%

15%

20%

28%

23%

20%

48%

38%

45%

33%

47%

59%

Loan includes warrants2

5%

3%

8%

0%

4%

0%

19%

25%

17%

16%

18%

15%

  Warrant coverage less than 25%

20%

100%

80%

N/A

0%

N/A

69%

47%

23%

43%

33%

80%

  Warrant coverage at 25%

0%

0%

0%

N/A

0%

N/A

0%

7%

15%

14%

11%

0%

  Warrant coverage greater than 25%

80%

0%

20%

N/A

100%

N/A

31%

47%

62%

43%

56%

20%

Principal is convertible into equity3

98%

93%

97%

97%

90%

95%

94%

86%

92%

92%

87%

94%

Conversion rate subject to price cap4

67%

64%

79%

74%

69%

74%

23%

26%

29%

34%

25%

44%

Conversion to equity at discounted price5

81%

78%

82%

89%

83%

89%

73%

71%

74%

76%

85%

74%

  Discount on conversion less than 20%

10%

11%

12%

16%

23%

13%

25%

25%

25%

20%

20%

23%

  Discount on conversion at 20%

72%

73%

76%

74%

60%

67%

44%

47%

49%

50%

48%

64%

  Discount on conversion greater than 20%

17%

16%

12%

10%

17%

20%

32%

27%

26%

30%

33%

14%

Conversion to equity at same price as other investors

16%

18%

13%

3%

14%

6%

24%

25%

19%

24%

6%

16%

1 We based this analysis on deals having an initial closing in the period to ensure that the data clearly reflects current trends. Please note the numbers do not always add up to 100% due to rounding.
2 Of the 2014 post-Seed bridges with warrants, 38% also had a discount on conversion into equity. Of the 2015 post-Seed bridges with warrants, 58% also had a discount on conversion into equity. Of the 2016 post-Seed bridges with warrants, 33% also had a discount on conversion into equity. Of the 2017 post-Seed bridges with warrants, 60% also had a discount on conversion into equity. Of the 2018 post-Seed bridges with warrants, 45% also had a discount on conversion into equity. There were no 1H 2019 post-Seed bridges with warrants.
3 Of the 2016 pre-Seed convertible bridges, 93% had automatic conversion and 7% had voluntary conversion. Of the 2017 pre-Seed convertible bridges, 94% had automatic conversion and 6% had voluntary conversion. Of the 2018 pre-Seed convertible bridges, 98% had automatic conversion and 2% had voluntary conversion. Of the 1H 2019 pre-Seed convertible bridges, 100% had automatic conversion. Of the 2016 post-Seed convertible bridges, 97% had automatic conversion and 3% had voluntary conversion. Of the 2017 post-Seed convertible bridges, 93% had automatic conversion and 7% had voluntary conversion. Of the 2018 post-Seed convertible bridges, 96% had automatic conversion and 4% had voluntary conversion. Of the 1H 2019 post-Seed convertible bridges, 94% had automatic conversion and 6% had voluntary conversion. The 2016 median dollar threshold for a qualified financing in pre- and post-Seed bridges was $1M and $5M, respectively. The 2017 median dollar threshold for a qualified financing in pre- and post-Seed bridges was $2M and $10M, respectively. The 2018 median dollar threshold for a qualified financing in pre- and post-Seed bridges was $3M and $5M, respectively. The 1H 2019 median dollar threshold for a qualified financing in pre- and post-Seed bridges was $3M and $5M, respectively.
4 The 2016 median price cap in pre- and post-Seed bridges was $6M and $25M, respectively. The 2017 median price cap in pre- and post-Seed bridges was $10M and $25M, respectively. The 2018 median price cap in pre- and post-Seed bridges was $8M and $40M, respectively. The 1H 2019 median price cap in pre- and post-Seed bridges was $9M and $35M, respectively.
5 Of the 2014 post-Seed bridges that had a discount on conversion into equity, 10% also had warrants. Of the 2015 post-Seed bridges that had a discount on conversion into equity, 21% also had warrants. Of the 2016 post-Seed bridges that had a discount on conversion into equity, 8% also had warrants. Of the 2017 post-Seed bridges that had a discount on conversion into equity, 13% also had warrants. Of the 2018 post-Seed bridges that had a discount on conversion into equity, 11% also had warrants. Of the 1H 2019 post-Seed bridges that had a discount on conversion into equity, 17% had warrants.

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WSGR Methodology

  • The Up/Down/Flat analysis is based on WSGR deals having an initial closing in the period reported to ensure that the data clearly reflects current trends.

  • The median pre-money valuation is calculated based on the pre-money valuation given at the time of the initial closing of the round. If the issuer has a closing in a subsequent quarter, the original pre-money valuation is used in the calculation of the median for that quarter as well.

  • A substantial percentage of deals have multiple closings that span fiscal quarters. The median amount raised is calculated based on the aggregate amount raised in the reported quarter.

This report is based on detailed deal data provided by the firm's corporate and securities attorneys and analyzed by the firm's Knowledge Management department.

 



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