“Pricing through the beginning of the third quarter of 2015 stayed largely in line with pricing in 2014 in the low 80s,” Greenhill Cogent’s Nick said. “However, the public market volatility toward the end of the year and increased doubts regarding exits for unicorns -- Square’s initial public offering, news regarding Theranos, Good Technology -- weighed on buyers’ perceptions.”
During the final quarter of 2015, about 18 percent of startups raised money at the same or lower valuations than in their previous funding rounds, according to a report from Silicon Valley law firm Fenwick & West LLP.
During 2015, 29 percent of 41 U.S.-based technology companies that went public did so at a lower valuation than their final private funding round, according to the report.
Unicorns could comprise 90 percent of some funds’ values, according to Peter McGrath, a managing director at Toronto-based secondaries firm Setter Capital. As pre-IPO finance rounds have flattened or declined for some companies, venture capital funds’ limited partners have become more conservative, he said.
Meanwhile, sentiment toward later stage venture and growth funds has improved, as investors in later rounds tend to have better protection if the company was exited below the value of the funding round, according to Nick.
“People are gravitating towards late-stage venture capital. They think those are a bit more ‘real,’ with less risk,” Nick said. “The caveat is that if there is a unicorn in the portfolio, all bets are off.”
Some older funds with “tired” assets can attract a 30 percent discount to NAV, according to Mathieu Drean of Triago. However, good funds have a more slender discount of 10 percent to 12 percent, he said.
Because of the recovery in listed equities since January, declines in venture capital secondaries pricing have not yet been as steep as expected, Cambridge Associates’ managing director of venture capital research Theresa Hajer said. Still, she said, given the public market volatility, secondary venture volume is likely to increase and prices are likely to continue to fall.