Fenwick & West Survey Finds Valuations in Silicon Valley Weakening
The latest quarterly survey of law firm Fenwick & West LLP found most Silicon Valley companies that raised funding ventures in the fourth quarter of 2015 weakened .
From the result overview, Fenwick & Westclaimed the valuation results in last quarter of last year were "moderately strong", but not as strong as the recent quarters. According to the firm, "Up rounds exceeded down rounds 82% to 12%, with 6% flat. This was a decrease from a very strong 3Q15, when up rounds exceeded down rounds 86% to 4%, with 10% flat."
Up rounds, by definition, is when the price per share where a company sells its stock has increased since the company's prior financing around. Down rounds, on the other hand, is one in which the price per share has decline from its prior financing around, according to Yahoo Finance.
This indicates that Silicon Valley is not having a decline; only the valuations are dropping as the cheap capital party is over.
According to the partner of the Fenwick & West, Barry Kramer, the weakening of the valuations should not be seen as a downfall. The signals from the calculations could be mixed, which means investors are either "pulling back and investing less" or "slowing down to see where the market is", as reported in The Wall Street Journal.
Kramer compared the falling valuations on Silicon Valley companies to those internet, digital media, and hardware companies. Since the first quarter of 2010, software wasn't one of the top two favored industry while last quarter it achieved the third spot just behind internet/digital media. He suggested that it could be a positive change as it shows investment diversity amongst investors.
After the rising of the Silicon Valley in the late 90s, business trends nowadays had been referred back to hardware as the era changes. As society develops various needs of medium maintaining the software, many hardware industries are taking chances for it, specifically those in the likeness of Internet of Things, drones, and even virtual realities.
In another perspective, CNBC interviewed some venture capitalists and technology investors. They forecasted that this upcoming year is estimated to be for scoring of start-up companies with a technology business model.
Most of these start-up companies are those that equally have potentials and challenges of establishing good investors and assets. Although in the end, only a few achieve prominence.