|
From the WSGR Database: Financing Trends for Q1-Q3 2018
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.
|
Market conditions for venture funding
remained very strong in the third quarter of
2018. Deal size and pre-money valuations
across all equity rounds decreased
slightly but still remained high by historical
standards. Median pre-money valuations
inched down across the board in Q3
2018. The decline in median amounts
raised was more significant, with Series
B financings taking the most significant
hit, and with the median size falling nearly
50% from the prior quarter. However,
more post-Series A financings were up
rounds, reversing the decline seen in the
first half of 2018.
The median amount raised in post-Seed
bridge loans in Q3 2018 also declined
from Q2 2018; however, the median
amount raised in pre-Seed bridges ticked
up modestly from the prior quarter. The
percentage of both pre- and post-Seed
bridges having maturity periods of 12
or more months also increased to levels not seen since 2013 and 2014, perhaps
indicating expectations that it may take
longer to raise next equity rounds.
Up and Down Rounds
The proportion of up round financings
rebounded in Q3 2018, increasing from
72% in Q2 to 87% of Series B and later
financings in the quarter. The share of
down round financings decreased, from
15% in Q2 2018 to 10% in Q3 2018. Flat
rounds were also less common in Q3
2018, decreasing from 13% of financings in
Q2 2018 to only 3% in Q3.
 Valuations
Median pre-money valuations for Series
Seed and Series A financings in Q3
retreated slightly from the record highs
reached in Q2 2018, but remained
well above five-year medians. Median
pre-money valuations for Series Seed
financings dropped from $10.0 million
in Q2 2018 to $7.8 million in Q3, while
median Series A valuations fell from $25.0
million in Q2 to $21.0 million in Q3. The
median pre-money valuation for Series B
rounds also backed off the historic high of
$72.0 million reached in Q2 2018 but still
came in at a strong $68.3 million in Q3,
making it the second-highest quarter for
Series B pre-money valuations in the past
six years. The median pre-money valuation
for Series C and later deals declined
from the near-high reached in Q2 2018
of $227.5 million to $182.5 million in Q3,
only slightly exceeding the full-year 2017
median of $179.8 million, but well above
the five-year median of $110.8 million.
Amounts Raised
Median amounts raised for Series Seed
and Series A financings in Q3 2018 fell from Q2’s record highs to amounts closer
to those seen in Q1 2018, declining from
$3.0 million and $8.5 million, respectively,
in Q2 to $1.7 million and $6.0 million,
respectively, in Q3 2018. The median
amount raised in Series B financings fell
sharply from $18.0 million in Q2 2018
to $10.1 million in Q3, but still remained
above the full-year 2017 median of $10.0
million.
The median amount raised in Series C
and later financings in Q3 2018 decreased
modestly, from $22.5 million in Q2 2018
to $18.3 million in Q3, slightly below the
full-year 2017 median of $20.0 million, but
exceeding the five-year median of $15.0
million.
Deal Terms - Preferred
 Nearly 70% of post-Series A rounds used
pari passu liquidation preferences in Q1-Q3 2018, the highest percentage in the
past five years. The percentage of down
rounds with senior liquidation preferences
dropped dramatically, from 63% in 2017
to 25% in Q1-Q3 2018; meanwhile, the
percentage of down rounds with pari passu
preferences nearly doubled, from 38% in
2017 to 75% in Q1-Q3 2018.
The percentage of financings with no
participation increased slightly from 84% in
2017 to 86% in Q1-Q3 2018, but the total
represents a higher percentage than in any
of the prior four full years.
The use of redemption rights decreased
dramatically, accounting for just 6% of
Q1-Q3 2018 financings, down from 19%
in 2017. The significant drop in the number
of deals with redemption rights reflects the
continuing leverage that companies have
to dictate terms in a strong market
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
|
2013 |
2014 |
2015 |
2016 |
2017 |
Q3 2018 |
2013 |
2014 |
2015 |
2016 |
2017 |
Q3 2018 |
2013 |
2014 |
2015 |
2016 |
2017 |
Q3 2018 |
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 |
41% |
40% |
33% |
38% |
35% |
31% |
38% |
32% |
31% |
36% |
31% |
29% |
47% |
68% |
35% |
41% |
63% |
25% |
Pari Passu with Other Preferred |
55% |
56% |
62% |
57% |
62% |
69% |
60% |
64% |
66% |
62% |
66% |
71% |
37% |
21% |
53% |
45% |
38% |
75% |
Junior |
0% |
0% |
1% |
1% |
0% |
0% |
0% |
0% |
1% |
0% |
0% |
0% |
0% |
0% |
0% |
5% |
0% |
0% |
Complex |
3% |
2% |
3% |
4% |
3% |
0% |
2% |
2% |
1% |
2% |
4% |
0% |
11% |
5% |
12% |
9% |
0% |
0% |
Not Applicable |
1% |
3% |
1% |
0% |
0% |
0% |
0% |
2% |
1% |
0% |
0% |
0% |
5% |
5% |
0% |
0% |
0% |
0% |
Participating vs. Non-participating |
Participating - Cap |
18% |
12% |
8% |
9% |
6% |
4% |
20% |
14% |
11% |
10% |
7% |
5% |
23% |
13% |
12% |
22% |
31% |
0% |
Participating - No Cap |
12% |
14% |
11% |
11% |
10% |
10% |
10% |
11% |
12% |
13% |
11% |
9% |
30% |
32% |
35% |
4% |
19% |
17% |
Non-participating |
70% |
74% |
81% |
81% |
84% |
86% |
69% |
76% |
77% |
77% |
82% |
86% |
48% |
55% |
53% |
74% |
50% |
83% |
Dividends |
Yes, Cumulative |
12% |
13% |
3% |
6% |
7% |
7% |
12% |
11% |
3% |
7% |
9% |
8% |
13% |
24% |
24% |
22% |
13% |
27% |
Yes, Non-cumulative |
74% |
72% |
82% |
73% |
78% |
64% |
79% |
74% |
86% |
78% |
78% |
66% |
79% |
71% |
76% |
70% |
81% |
64% |
None |
14% |
15% |
15% |
21% |
16% |
29% |
9% |
15% |
11% |
15% |
13% |
26% |
8% |
5% |
0% |
9% |
6% |
9% |
Anti-dilution Provisions |
Weighted Average - Broad |
90% |
85% |
80% |
92% |
94% |
94% |
94% |
90% |
86% |
92% |
96% |
93% |
95% |
92% |
75% |
91% |
100% |
100% |
Weighted Average - Narrow |
3% |
9% |
13% |
1% |
2% |
2% |
3% |
6% |
12% |
1% |
1% |
3% |
0% |
5% |
19% |
0% |
0% |
0% |
Ratchet |
1% |
1% |
1% |
1% |
0% |
0% |
0% |
1% |
1% |
2% |
0% |
0% |
3% |
0% |
0% |
0% |
0% |
0% |
Other (Including Blend) |
1% |
1% |
1% |
3% |
1% |
1% |
1% |
1% |
1% |
3% |
1% |
0% |
0% |
0% |
0% |
9% |
0% |
0% |
None |
5% |
4% |
5% |
3% |
3% |
4% |
2% |
2% |
1% |
2% |
1% |
3% |
3% |
3% |
6% |
0% |
0% |
0% |
Pay to Play - Series B and Later |
Applicable to This Financing |
5% |
4% |
5% |
5% |
2% |
4% |
1% |
1% |
3% |
3% |
2% |
1% |
15% |
16% |
18% |
9% |
6% |
0% |
Applicable to Future Financings |
1% |
0% |
1% |
1% |
0% |
2% |
1% |
0% |
0% |
1% |
0% |
2% |
0% |
0% |
12% |
0% |
0% |
0% |
None |
95% |
96% |
94% |
94% |
98% |
94% |
98% |
99% |
97% |
96% |
98% |
96% |
85% |
84% |
71% |
91% |
94% |
100% |
Redemption |
Investor Option |
19% |
17% |
13% |
11% |
12% |
5% |
20% |
22% |
19% |
20% |
19% |
8% |
33% |
24% |
12% |
9% |
20% |
8% |
Mandatory |
1% |
3% |
2% |
2% |
7% |
1% |
2% |
3% |
3% |
3% |
9% |
2% |
0% |
3% |
0% |
0% |
0% |
0% |
None |
80% |
80% |
85% |
87% |
81% |
94% |
78% |
75% |
78% |
77% |
72% |
90% |
67% |
74% |
88% |
91% |
80% |
92% |
| 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 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 increased slightly in Q3 2018,
rising from $0.34 million in Q2 2018 to
$0.43 million in Q3. In contrast, the median
amount raised in post-Seed bridges fell
from $1.61 million in Q2 2018 to $1.00 million
in Q3, which was lower than both the
full-year 2017 median of $1.50 million and
the five-year median of $1.28 million.
Deal Terms – Bridge Loans
The percentage of pre-Seed loans with
maturity periods of 12 or more months
increased from 77% in 2017 to 96% in Q1-Q3 2018, with 23% of loans having interest
rates of at least 8%, as compared to 25%
in 2017. The percentage of pre-Seed
bridge loans subordinated to other debt
fell from 28% in 2017 to 13% in Q1-Q3
2018. Although the number of pre-Seed
bridge loans that are convertible to equity
at discounted prices increased slightly from
89% in 2017 to 91% in Q1-Q3 2018, the
number of such convertible loans receiving
a discount rate of 20% or more on
conversion fell, from 84% in 2017 to 75%
in Q1-Q3 2018.
The percentage of post-Seed loans with
maturity periods of 12 or more months
increased from 60% in 2017 to 76% in Q1-
Q3 2018, with 42% of loans having interest
rates of at least 8%, as compared to 44%
in 2017. The percentage of post-Seed
bridge loans subordinated to other debt
rose from 33% in 2017 to 55% in Q1-Q3
2018. More post-Seed bridge financings
had warrants in Q1-Q3 2018 than in 2017,
increasing from 16% in 2017 to 24% in
Q1-Q3 2018, most (71%) of which had
warrant coverage of at least 25%. The
percentage of post-Seed bridge loans convertible
to equity remained steady at 92%
in Q1-Q3 2018, although the percentage
of those subject to a price cap decreased
modestly, from 34% in 2017 to 21% in
Q1-Q3 2018.
Bridge Loans – Deal Terms (WSGR Deals)1
Bridge Loans |
2013
Pre-Series
A |
2014
Pre-Series
A |
2015
Pre-Series
A |
2016
Pre-Series
A |
2017
Pre-Series
A |
Q3 2018
Pre-Series
A |
2013
Post-Series
A |
2014
Post-Series
A |
2015
Post-Series
A |
2016
Post-Series
A |
2017
Post-Series
A |
Q3 2018
Post-Series
A |
Interest rate less than 8% |
70% |
72% |
74% |
76% |
75% |
77% |
46% |
43% |
54% |
52% |
56% |
58% |
Interest rate at 8% |
29% |
22% |
19% |
19% |
17% |
18% |
34% |
42% |
33% |
30% |
27% |
31% |
Interest rate greater than 8% |
1% |
6% |
7% |
5% |
8% |
5% |
20% |
15% |
13% |
17% |
17% |
11% |
Maturity less than 12 months |
3% |
12% |
17% |
17% |
22% |
4% |
29% |
24% |
34% |
29% |
41% |
24% |
Maturity at 12 months |
19% |
16% |
9% |
5% |
8% |
9% |
38% |
39% |
8% |
23% |
19% |
26% |
Maturity more than 12 months |
78% |
71% |
74% |
78% |
69% |
87% |
33% |
37% |
58% |
49% |
41% |
50% |
Debt is subordinated to other debt |
25% |
22% |
15% |
20% |
28% |
13% |
56% |
48% |
38% |
45% |
33% |
55% |
Loan includes warrants2 |
4% |
5% |
3% |
8% |
0% |
5% |
34% |
19% |
25% |
17% |
16% |
24% |
Warrant coverage less than 25% |
0% |
20% |
100% |
80% |
N/A |
0% |
50% |
69% |
47% |
23% |
43% |
29% |
Warrant coverage at 25% |
0% |
0% |
0% |
0% |
N/A |
0% |
12% |
0% |
7% |
15% |
14% |
14% |
Warrant coverage greater than 25% |
100% |
80% |
0% |
20% |
N/A |
100% |
38% |
31% |
47% |
62% |
43% |
57% |
Principal is convertible into equity3 |
100% |
98% |
93% |
97% |
97% |
100% |
94% |
94% |
86% |
92% |
92% |
92% |
Conversion rate subject to price cap4 |
68% |
67% |
64% |
79% |
74% |
74% |
14% |
23% |
26% |
29% |
34% |
21% |
Conversion to equity at discounted price5 |
91% |
81% |
78% |
82% |
89% |
91% |
59% |
73% |
71% |
74% |
76% |
88% |
Discount on conversion less than 20% |
17% |
10% |
11% |
12% |
16% |
25% |
16% |
25% |
25% |
25% |
20% |
10% |
Discount on conversion at 20% |
60% |
72% |
73% |
76% |
74% |
60% |
46% |
44% |
47% |
49% |
50% |
50% |
Discount on conversion greater than 20% |
22% |
17% |
16% |
12% |
10% |
15% |
38% |
32% |
27% |
26% |
30% |
40% |
Conversion to equity at same price as other investors |
9% |
16% |
18% |
13% |
3% |
5% |
35% |
24% |
25% |
19% |
24% |
6% |
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 2013 post-Seed bridges with warrants, 24% also had a discount on conversion into equity. 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 Q1-Q3 2018 post-Seed bridges with warrants, 55% also had a discount on conversion into equity.
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 Q1-Q3 2018 pre-Seed convertible bridges, 96% had automatic conversion and 4% had voluntary 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 Q1-Q3 2018 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 Q1-Q3 2018 median dollar threshold for a qualified financing in pre- and post-Seed bridges were $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 Q1-Q3 2018 median price cap in pre- and post-Seed bridges was $8M and $20M, respectively.
5 Of the 2013 post-Seed bridges that had a discount on conversion into equity, 15% also had warrants. 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 Q1-Q3 2018 post-Seed bridges that had a discount on conversion into equity, 17% also 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.
To learn more about WSGR's full suite of services for entrepreneurs and early-stage companies, please visit the Start-Ups and Venture Capital section of wsgr.com.
For more information about this report or if you wish to be included on the email subscription list, please email us at EntrepreneursReport@wsgr.com. There is no subscription fee. |
This communication is provided as a service to our clients and friends and is for informational purposes only. It is not intended to create an attorney-client relationship or constitute an advertisement, a solicitation, or professional advice as to any particular situation.
© 2018 Wilson Sonsini Goodrich & Rosati, Professional
Corporation
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