Monday, November 12, 2012

Startup Valuations


 ~ Valuations for startups remain quite strong. Maybe too strong.

Iconic Silicon Gulch law firm Wilson Sonsini (WSGR) has released the latest version of their regular survey showing valuations remain quite robust compared to the past several years.

VC investment pre-money valuations by round 2010-2012

It's astonishing that the median pre-money valuation for a VC-funded Series A round is $8M.

These figures exclude investments by angel investors, so this is the distilled wisdom of venture capital (VC) firms as reflected by what they are putting in term sheets. Are so many startups receiving their first institutional round really worth that much? Or are the VCs again committing the periodic sin endemic to their herd and together chasing a narrower and narrower swath of available entrepreneurial innovation?

It looks a lot like froth, and won't end well for either the entrepreneurs or the VCs (and especially for their limited partners.) We would see less of this boom and bust cycle if institutional investors cast off their sectoral blinders, and considered investing in a broader ecosystem.

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