Venture capital showed a split personality in the third quarter as confidence in business conditions dropped due to high prices, but valuations rose for another quarter.
The quarter illustrates how the industry continues to struggle with high expectations for disruptive innovation and inflated investment valuations for startups, particularly in late-stage deals.
In one study released last week, the Silicon Valley Venture Capitalist Confidence Index slumped for the third quarter in a row to the lowest level in four years. The quarterly drop was fairly substantial, to 3.39 from 3.73 in the second quarter, and the reason was clear: persistent high prices for private financings.
This gap between public and private markets was evident again on Friday when Square announced an expected price range for its upcoming IPO that was below what investors paid in the company’s most recent Series E round of private financing.
The confidence index, published by Professor Mark Cannice at the University of San Francisco, measures confidence on a five-point scale with five indicating high confidence.
Meanwhile, the law firm Cooley found that private company pricing continued to climb in the third quarter. Cooley said median pre-money valuations rose at all deal stages, and particularly for late ones.
In Series D and later rounds, the median pre-money valuation increased to $400 million. The Cooley study also found that among all deals, 90 percent of rounds in the quarter were up rounds.
The study looked at 140 deals Cooley handled in the quarter.