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Early-stage valuations and round sizes rose noticeably last year

Last year proved a strong one for early-stage valuations and round sizes, although later rounds saw a decline in both metrics, according to a survey from Wilson Sonsini Goodrich & Rosati.

The survey, based on deals the law firm handled over the year, offers another piece of evidence that as caution spread to late-stage rounds, investors shifted their focus to earlier transactions.

It found the year’s $13 million 2016 median pre-money valuation for Series A and seed deals to be the strongest in five years of tracking and the $3.4 million median round size in the deals set a survey record. The median round size was up 26 percent from 2015.

Bridge loans also were boomed. The median raised in post-Series A bridge loans, $1.7 million, set a five-year high, the survey found.

Not surprisingly, Series C and later rounds witnessed a decline in pre-money valuations and in the amounts raised compared with the past two years. The median pre-money valuation slipped to $89.1 million, down 13 percent from 2015.

For the year, up rounds were less frequent than in 2015, when a record was set. Seventy-seven percent of deals were marked higher in 2016, compared with 83 percent in the previous year. Up rounds in the fourth quarter fell only modestly as a percent of deals from earlier in the year, suggesting the final quarter of the year wasn’t as negative as the overall drop in venture funding might indicate.

Down rounds for the year took place in 15 percent of financings compared with 9 percent in 2015.

Of note is that the median pre-money valuation for Series B rounds followed the later deals lower, dropping during the year to $34.4 million from $40 million in 2015.

The survey found the use of senior liquidation preferences increased modestly in Series B and later rounds, from 33 percent of the rounds in 2015 to 38 percent in 2016. Investors also received broad-based weighted-average anti-dilution protection in 92 percent of all deals last year, a rise from 80 percent in 2015.

Action Item: To find out more about the Wilson Sonsini survey, visit http://bit.ly/2kRBXGQ

Photo of business people examining a stack of money courtesy of ©iStock/DNY59