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US Venture-backed valuations continue to increase in second quarter 2004

Valuations of US venture-backed companies increased in the second quarter of 2004, showing steady improvement for the fifth consecutive quarter, according to the latest figures from VentureOne. The overall median pre-money valuation reached its highest level in two and a half years at $13.8m, a significant increase from the $9.1m posted in the same period last year.

For the first time in almost three years, valuations for information technology companies were higher than those for healthcare companies, at $15.3m and $14m, respectively. In fact, valuations rose for all industry segments within IT, with the highest pre-money valuations of the quarter being the $75m median posted by communications companies receiving later-stage rounds of financing.

'Recent acquisitions are providing greater liquidity opportunities for information technology companies in the first half of the year,' said John Gabbert, vice president of worldwide research at VentureOne. 'This is driving investors to direct more capital at higher valuations into the most promising technology firms in their portfolios.'

'Venture capitalists in the second quarter allocated more than $3bn to information technology deals, the most IT investment in a single quarter in two years,' Gabbert continued. 'The rediscovery of IT is leading to significantly higher valuations than have been seen in recent quarters in communications, electronics and semiconductor companies.'

In contrast, healthcare sector valuations continued to drop for the third consecutive quarter to $14m, from a high of $20.4m in the third quarter of 2003. The decline follows what had been a steady increase in the first quarters of 2003, driven by investments in pharmaceutical companies. Within the healthcare segment, later-stage medical device companies had the highest median pre-money valuations for the quarter, at $39m, compared to $26m overall for pharmaceutical companies.

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