Our private company clients often ask what kind of revenue or EBITDA multiple ranges they can expect upon a sale or when determining their enterprise value in connection with a financing. This is always a tricky question as value is driven by ever-changing supply and demand and then-current market conditions. Moreover, with yet-to-be-profitable startups, substantial value often lies with their IP, team and/or future prospects.  Accordingly, for a startup, the answer to this question is subjective at best. With that said, one of the better resources I have found for
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The 2015 Annual Halo Report has been released by The Angel Resource Institute at Willamette University (ARI) and PitchBook.  The Halo Report analyzes angel group investment activity and trends in the United States.  Here are a couple interesting FY 2015 highlights:

  • The median seed-stage valuation for 2015 deals hit an all-time high of $4.6M (up from 53% from 2014);
  • The median and mean round sizes in deals with only angel investors climbed to $850K and $1.164M, respectively (both up materially from 2014);
  • The median and mean round sizes in


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The Q3 2015 Halo Report has been released by The Angel Resource Institute at Willamette University (ARI) and PitchBook.  The Halo Report analyzes angel group investment activity and trends in the United States.  Here are a couple interesting Q3 2015 highlights:

  • The median seed-stage valuation has hit an all-time high of $4M (up from $3M in 2014);
  • The median round size in deals with only angel investors was $725K and the median round size in deals when angels co-invest with non-angels was $1.71M (both up materially from Q3 2014);


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PitchBook just released its analysis of Q3 2015 venture capital activity by region, focusing on three key U.S. regions: the Bay Area; New York; and the Pacific Northwest. Below are the PitchBook infographics and a quick summary of the results:

Bay Area:

  • The median pre-money valuation for Q3 2015 was $61.8m.
  • The reported deals with the highest valuations were: Uber Series F pre-money at $51B; Stem Centrx Series G pre-money at $4.8B; Palantir Technologies pre-money at $4.9B; and Stripe pre-money at $4.9B.

3Q_2015_Bay_Recap-2New York metro:

  • The median pre-money valuation


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PitchBook recently released its 1H 2015 VC Valuations and Trends Report that breaks down over 20,000 valuations of private company financings and exits over the past 10 years. The report shows continued increase in median U.S. venture-backed company valuation across stage of investment. Not surprising, PitchBook’s conclusion is that Series Seed is the new Series A, Series A is the new Series B, and Series B is the new Series C – noting that while this is not a new finding by any means, PitchBook has more data to support
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The Q1 2014 Halo Report has been released by the Angel Resource Institute, Silicon Valley Bank and CB Insights. The Halo Report analyzes angel investment activity and trends in the United States. Here are a couple interesting Q1 2014 highlights:

  • The median angel round size jump to $980K (up from $750K in each of Q1 and Q4 2013);
  • The median round size was $1.65M when angel groups co-invest with other types of investors;
  • The median seed stage pre-money valuation increased slightly to $2.7M;
  • Angel groups continue to


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Today the Angel Resource Institute, Silicon Valley Bank and CB Insights released their angel group 2013 year in review, the Halo Report. The Halo Report analyzes angel investment activity and trends in the United States. Here are a couple interesting 2013 highlights:

  • The median angel round size remained steady over the last three years at $600K;
  • The median angel round size for 2013 was $1.7M when angel groups co-invest with other types of investors, which was an increase over the median 2012 round size of $1.5M;
  • The


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As a general rule, all stock option grants need to have an exercise price at or above the fair market value of the company’s common stock on the date such grant is made. This requirement, and its many related complexities, generally comes from Section 409A of the Internal Revenue Code and the related Internal Revenue Service (“IRS”) regulations (collectively, “Section 409A”). Section 409A was enacted several years ago in response to perceived abuse of deferred compensation arrangements brought to light during various high-profile corporate scandals.

The two main penalties imposed by Section 409A for granting a stock option with an exercise price below fair market value are (i) immediate tax upon vesting of the option (as opposed to at exercise or sale) and (ii) an additional 20% federal tax penalty (on top of the regularly applicable federal and state taxes). In addition, some states, such as California, may impose their own Section-409A-equivalent penalty tax. In order to avoid these penalties, the IRS requires that a stock option must be granted with an exercise price no less than the underlying shares’ fair market value determined as of the grant date and that such fair market value must be “determined by the reasonable application of a reasonable valuation method.”

The good news is that Section 409A provides three “safe-harbor” methods for determining fair market value, two of which are most commonly relied upon by startups and venture-backed companies (discussed below). If one of these safe harbor methods is used, then the resulting fair market value is presumed to be “reasonable” unless the IRS can establish that the company’s determination was “grossly unreasonable.”


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pic-tyler.jpgCONTRIBUTED BY
Tyler Hollenbeck
tyler.hollenbeck@dlapiper.com

In an earlier post we defined the term “pre-money valuation” and explained how this valuation is used to calculate the price per share at which stock is sold in a VC financing.  Actually determining this “pre-money” or “pre-investment” valuation, though, is often one of the most fundamental terms for founders and investors to negotiate, as it effectively sets the relative percentage ownership levels of the two groups (assuming a fixed investment amount).

Despite this fundamental character, “calculating” an appropriate valuation (or even a range


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