The appeal of startup companies to venture capital firms is improving, based on the latest figures from VentureOne.
The median “premoney” valuations of US firms climbed to $15 million in the first quarter. That’s the highest average since 2001, said VentureOne, which is the publisher of VentureSource and is one of the most widely followed sources of venture capital news and trends.
The $15 million total is an increase of nearly $4 million from 2004.
Premoney is the estimated value investors give to a business before an investment takes place.
“These higher first-round valuations may be due to the fact that some of the companies receiving these first-round financings are more established than traditional early-stage deals, as entrepreneurs bootstrapped their companies during the belt-tightening investment periods of 2002 and 2003.” said John Gabbert, vice president of worldwide research for VentureOne, in a statement.
Early-stage technology companies saw their premoney value jump to $9 million from a paltry $4.7 million in 2004.
In its first-quarter statistics, VentureOne noted that early-stage deals won 32 percent of the more than $4 billion invested. That was up 2 percent from 2004. Seed-stage firms drew the highest level of investment since 2001 as the new year began.
“This is the highest median premoney valuation for first-round financings since the third quarter of 2001, suggesting that venture investors are optimistic as they begin to deploy the $17.8 billion in new funds raised during 2004,” VentureOne said.
VentureOne also said many of the companies now drawing investors are further along in product development than a year ago.
“The area with the most increase was the early stage round,” added Matthew Garlick, research manager at VentureOne, in an interview with VentureWire.
Premoney valuations for later-stage firms did drop, however, to $30.5 million in the first quarter from $40 million in 2004.
“The liquidity market has always affected private company valuations, and given the uncertainty surrounding the current IPO market, it’s reasonable to expect a flattening of later stage valuations,” Gabbert said.