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COOLEY VENTURE FINANCING REPORT

Q2 2014Deal Activity Rises as Up Rounds Increase*


Overall financing activity in the second

TRENDS IN FINANCIAL TERMS

quarter of 2014 showed robust increases


over the prior quarters. In Q2 2014, Cooley

TOTAL DEAL VOLUME AND AGGREGATE DOLLARS RAISED. Overall deal volume and aggregate

handled 87 deals representing over $1.5

dollars raised increased from the prior two quarters.

billion of invested capital. Of particular note,


the percentage of up rounds in the quarter

$2,500

reached more than 87% of deals, a level

$2,000

not seen since 2011. More than 44% of the

$1,500

transactions during the quarter were Series

$1,000

A deals, an increase from Q1. The data also

$500

pointed to a sizeable increase in median pre-

150

100

50

$0
2013 | Q1

money valuations for Series A transactions. In


Q2, the median pre-money valuation for Series

A deals hit $19 million, a level not seen in

# of Deals
Amt (millions)

2013 | Q2 2013 | Q3

2013 | Q4

2014 | Q1 2014 | Q2

104

107

109

83

76

87

$1209

$1215

$1077

$830

$1401

$1532

more than a year. However, median pre-money


valuations decreased for Series B, C and D+
transactions. The percentage of Q2 deals
with pre-money valuations greater than $100

DEAL BREAKDOWNBy Series.

million was 18%, a level also higher than the


prior two quarters.
Second quarter deal terms were somewhat
mixed, but in aggregate pointed to a company-

22%

friendly financing environment. Liquidation


preferences of greater than 1x increased in

27%

36%

38%

13%

19%

10%

21%

13%

17%

26%

30%

26%

28%

2013 | Q1

2013 | Q2

2013 | Q3

13%

15%

46%

28%

all deal stages with the exception of Series


C transactions. However, the percentage

2013 | Q4

of deals utilizing fully participating preferred


provisions decreased in all deal stages in Q2.
Additionally,
the percentage
of recapitalization
22%
26%
30%

transactions and deals structured in tranches


21%

17%
36%

38%

10%

13%

46%

19%

both decreased
markedly from
prior quarters,
27%
26%
a signal of investor optimism. During Q2, payto-play
were not2013
used
in deals we
2013provisions
| Q1
| Q2

18%

28%

28%

2013 | Q3

12%
38%

44%

24%

29%

2013 | Q4

20%

2014 | Q1

2014 | Q2

handled. More than 85% of transactions utilized


drag-along provisions during the quarter.

Series A

Series B

Series C

Series D or Higher

*Quarterly analysis based upon 87 completed deals totaling approximately $1.5 billion in the second quarter of 2014; 76
completed deals totaling approximately $1.4 billion in the first quarter of 2014; 83 completed deals totaling approximately $830
million in the fourth quarter of 2013; 109 completed deals totaling approximately $1.08 billion in the third quarter of 2013;
107 completed deals totaling approximately $1.22 billion in the second quarter of 2013 and 104 completed deals totaling
approximately $1.2 billion in the first quarter of 2013. Please note our past quarterly deal numbers can change based on data not
available at the time of the report.

Q2 2014

attorney advertisement

COOLEY VENTURE FINANCING REPORT

PERCENTAGE OF UP, DOWN AND FLAT ROUNDS. The percentage of up rounds across all deal stages
reached more than 87% of deals, a level not seen since 2011.

100%
87%

90%
80%

75%

72%
70%

73%

75%

65%

60%

2013 | Q1 2013 | Q2

2013 | Q3 2013 | Q4 2014 | Q1 2014 | Q2

MEDIAN PRE-MONEY VALUATION ($ millions)By Series. Median pre-money valuations decreased

in all deal stages, with the exception of Series A deals, which saw a sizable increase from prior quarters.

SERIES A

SERIES B
$19.0

$20
$15

$30

$10.5
$8.1

$7.8

$20

$5
$0

$45.6

$26.0
$16.0

$0

2013 | Q1 2013 | Q2 2013 | Q3 2013 | Q4 2014 | Q1 2014 | Q2

2013 | Q1 2013 | Q2 2013 | Q3 2013 | Q4 2014 | Q1 2014 | Q2

SERIES C

SERIES D or HIGHER
$200

$125.0

$171.4

$150

$100

$85.0
$55.4

$0

$38.5

$10

$150

$50

$38.6

$37.0

$40

$12.8

$11.4
$10

$50

$68.1

$130.6
$110.8

$105.5
$100

$55.0

$65.0

$28.0

$77.5

$50
$0

2013 | Q1 2013 | Q2 2013 | Q3 2013 | Q4 2014 | Q1 2014 | Q2

2013 | Q1 2013 | Q2 2013 | Q3 2013 | Q4 2014 | Q1 2014 | Q2

COOLEY VENTURE FINANCING REPORT

PRE-MONEY VALUATIONS OF MORE THAN $100 MILLIONBy Deal. More than 18% of Q2 deals had

a median pre-money valuation greater than $100 million.

25%
20%

25

23%

22%

18%

16%

20

14%

15%

15
10

8%

10%
5%

5
0

0%

2013 | Q1 2013 | Q2 2013 | Q3 2013 | Q4 2014 | Q1 2014 | Q2

LIQUIDATION PREFERENCEBy Series. Although a 1x liquidation preference remained the norm across

all series of financings, we observed an increase in the use of greater than 1x liquidation preferences in
Series A, B and D+ transactions.
SERIES A

100%
80%

80%

60%

60%

40%

40%

20%

20%
0%

0%

<=1X

>1X-=<2X

>2X-=<3X

>3X

2013 | Q1100%

92.6%

7.4%

SERIES A
0.0%

0.0%

None

<=1X

>1X-=<2X

>2X-=<3X

0.0%

2013 | Q1
100%

79.2%

16.7%

SERIES B
4.2%

>3X

None

0.0%

0.0%

2013 | Q280%

94.1%

2.9%

2.9%
SERIES C

0.0%

0.0%

2013 | Q280%

95.6%

96.7%

3.3%

0.0%

0.0%

0.0%

100%
2013 | Q360%

0.0%
0.0%
0.0%
SERIES D or HIGHER

4.4%

100%
2013 | Q360%

87.5%

12.5%

0.0%

0.0%

0.0%

80%
2013 | Q440%

82.8%

6.9%

0.0%

0.0%

10.3%

80%
2013 | Q440%

88.9%

11.1%

0.0%

0.0%

0.0%

94.4%

0.0%

5.6%

0.0%

0.0%

93.8%

6.2%

0.0%

0.0%

0.0%

<=1X

>1X-=<2X

>2X-=<3X

>3X

None

<=1X

>1X-=<2X

>2X-=<3X

>3X

None

60%
2014 | Q1 20% 100.0%

2014 | Q240%
0% 93.1%
<=1X
20%

0.0%

0.0%

0.0%

0.0%

2014 | Q160%
20%

6.9%

0.0%

0.0%

0.0%

2014 | Q240%
0%

>1X-=<2X

>2X-=<3X

>3X

None

>1X-=<2X

>2X-=<3X

>3X

None

20%

0%
<=1X

0%

SERIES C

100%

SERIES D or HIGHER

100%

80%

80%

60%

60%

40%

40%

20%

20%

0%

SERIES B

100%

0%

<=1X

>1X-=<2X

>2X-=<3X

>3X

None

2013 | Q1

89.5%

10.5%

0.0%

0.0%

0.0%

2013 | Q1

<=1X

>1X-=<2X

>2X-=<3X

63.2%

21.0%

5.3%

>3X

None

5.3%

5.3%

2013 | Q2

88.9%

11.1%

0.0%

0.0%

0.0%

2013 | Q2

69.6%

26.1%

0.0%

0.0%

4.4%

2013 | Q3

81.2%

12.5%

0.0%

0.0%

6.2%

2013 | Q3

85.7%

7.1%

7.1%

0.0%

0.0%

2013 | Q4

87.5%

0.0%

12.5%

0.0%

0.0%

2013 | Q4

100.0%

0.0%

0.0%

0.0%

0.0%

2014 | Q1

90.9%

9.1%

0.0%

0.0%

0.0%

2014 | Q1

88.9%

11.1%

0.0%

0.0%

0.0%

2014 | Q2

100.0%

0.0%

0.0%

0.0%

0.0%

2014 | Q2

75.0%

12.5%

12.5%

0.0%

0.0%

COOLEY VENTURE FINANCING REPORT

LIQUIDATION PREFERENCE: PARTICIPATION FEATURESBy Series. Across all deal stages there

was a significant decrease in the percentage of deals with fully participating preferred provisions.

SERIES
SERIES
A A

100%
100%
80%
80%

80%
80%

60%
60%

60%
60%

40%
40%

40%
40%

20%
20%

20%
20%

0% 0%
100%
100%

0% 0%

NoneNone

A A>3x >3x
2x Cap
2x CapSERIES
3xSERIES
Cap
3x Cap
Cap Cap Full Full

NoneNone

100%
100%

2x Cap
2x CapSERIES
3xSERIES
Cap
3x Cap
Cap Cap Full Full
B B>3x >3x

2013
| Q1
80%
80%

63.0%

11.1%

0.0%

18.5%

2013 | Q180%
80% 54.2%

2013 | Q2

73.5%

5.9%
0.0%
SERIES
SERIES
C C

8.8%

11.8%

2013 | Q2

69.6%

4.4%
4.4%
0.0%
SERIES
SERIES
D orDHIGHER
or HIGHER

21.7%

2013 | Q3

80.0%

3.3%

3.3%

0.0%

13.3%

2013 | Q3

79.2%

0.0%

4.2%

4.2%

12.5%

2013 | Q4

75.9%

6.9%

3.4%

0.0%

13.8%

2013 | Q4

73.9%

13.0%

0.0%

0.0%

13.0%

89.7%

0.0%

0.0%

0.0%

10.3%

60%
60%
100%
100%
40%
40%
80%
80%

20%
20%
60%
60%
2014 | Q1
0%0%

40%
40%
2014
| Q2

NoneNone

7.4%

2x Cap
2x Cap 3x Cap
3x Cap >3x>3x
CapCap

60%
60%
100%
100%

40%
40%
80%
80%
50.0%
20%
20%
60%
2014 | Q1 60%50.0%
0%0%
2014 | Q240%
40% 87.5%

Full Full

20%
20%

12.5%

4.2%

4.2%

25.0%

5.6%

5.6%

0.0%

38.9%

11.1%

5.6%

0.0%

33.3%

6.2%

0.0%

0.0%

6.2%

NoneNone

2x Cap
2x Cap 3x Cap
3x Cap >3x>3x
CapCap

Full Full

NoneNone

SERIES
orDCap
HIGHER
SERIES
or HIGHER
2x Cap
2x
Cap
3xDCap
3x
> 3x>Cap
3x Cap Full Full

NoneNone

2x Cap
2x Cap 3x Cap
3x Cap > 3x>Cap
3x Cap Full Full

20%
20%

0% 0%
100%
100%

0% 0%

NoneNone

C C
2x Cap
2x CapSERIES
3xSERIES
Cap
3x Cap
> 3x>Cap
3x Cap Full Full

100%
100%

80%
80%

80%
80%

60%
60%

60%
60%

40%
40%

40%
40%

20%
20%

20%
20%

0%0%

0%0%

NoneNone

SERIES
SERIES
B B

100%
100%

2x Cap
2x Cap 3x Cap
3x Cap > 3x>Cap
3x Cap Full Full
2013 | Q1

73.7%

5.3%

0.0%

33.3%

2013 | Q2

30.4%

17.4%

12.5%

2013 | Q3

57.1%

7.1%

0.0%

25.0%

2013 | Q4

37.5%

12.5%

9.1%

18.2%

2014 | Q1

55.6%

0.0%

0.0%

2014 | Q2

25.0%

25.0%

2013 | Q1

57.9%

15.8%

5.3%

0.0%

21.0%

2013 | Q2

44.4%

11.1%

11.1%

0.0%

2013 | Q3

87.5%

0.0%

0.0%

0.0%

2013 | Q4

37.5%

37.5%

0.0%

2014 | Q1

72.7%

0.0%

0.0%

2014 | Q2

92.3%

0.0%

0.0%

7.7%

10.5%

10.5%

13.0%

8.7%

30.4%

14.3%

0.0%

21.4%

25.0%

0.0%

25.0%

0.0%

0.0%

44.4%

12.5%

12.5%

25.0%

COOLEY VENTURE FINANCING REPORT

PERCENTAGE OF DEALS WITH PARTICIPATING PREFERREDBy Quarter and Series. In Q2, we


witnessed a significant decrease in the percentage of deals with participating preferred provisions.

50%
40%

38%

36%

30%

34%

32%

22%

20%

20%
10%
0%

2013 | Q1 2013 | Q2 2013 | Q3

2013 | Q4 2014 | Q1 2014 | Q2

80%
60%
40%
20%
0%
2013 | Q1

2013 | Q2

2013 | Q3

2013 | Q4

2014 | Q1

2014 | Q2

Series A

29.4%

24.3%

31.6%

26.9%

27.3%

25.0%

Series B

32.4%

18.9%

26.3%

34.6%

40.9%

16.7%

Series C

23.5%

13.5%

10.5%

19.2%

13.6%

8.3%

Series D or Higher

14.7%

43.2%

31.6%

19.2%

18.2%

50.0%

RECAPITALIZATIONSBy Quarter. The percentage of recapitalization transactions decreased markedly

from prior quarters.

15%

12%

10%

8%
6%

6%
4%

5%

1%
0%

2013 | Q1 2013 | Q2

2013 | Q3 2013 | Q4 2014 | Q1 2014 | Q2

TRANCHED DEALSBy Quarter. The percentage of deals structured in tranches decreased to a level

not seen in five years.

30%

20%

20%

22%
18%

10%

18%

15%
7%

0%

2013 | Q1

2013 | Q2 2013 | Q3 2013 | Q4 2014 | Q1 2014 | Q2

COOLEY VENTURE FINANCING REPORT

PERCENTAGE OF DEALS WITH PAY-TO-PLAYBy Quarter and Series. Pay-to-play provisions were not

used in deals we handled in Q2 2014.


15%
9%

10%

7%

7%
5%

4%

2%

0%

2013 | Q1 2013 | Q2

2013 | Q3 2013 | Q4 2014 | Q1 2014 | Q2

60%

40%

20%

0%

Series A

2013 | Q1

2013 | Q2

2013 | Q3

2013 | Q4

2014 | Q1

2014 | Q2

3.7%

0.0%

0.0%

0.0%

0.0%

0.0%

Series B

4.2%

0.0%

4.2%

0.0%

11.8%

0.0%

Series C

10.5%

44.4%

0.0%

12.5%

0.0%

0.0%

Series D or Higher

15.8%

17.4%

14.3%

0.0%

11.1%

0.0%

PERCENTAGE OF DEALS WITH DRAG-ALONGBy Quarter and Series. Utilization of drag-along

provisions increased from prior quarters.

100%
90%
80%

85%
75%

73%
66%

70%

78%

64%

60%
50%

2013 | Q1 2013 | Q2 2013 | Q3 2013 | Q4 2014 | Q1 2014 | Q2


100%
80%
60%
40%
20%
0%

2013 | Q1

2013 | Q2

2013 | Q3

2013 | Q4

2014 | Q1

2014 | Q2

Series A

74.1%

73.5%

66.7%

79.3%

78.3%

86.2%

Series B

75.0%

82.6%

66.7%

83.3%

83.3%

87.5%

Series C

94.7%

66.7%

75.0%

75.0%

63.6%

100.0%

Series D or Higher

63.2%

52.2%

85.7%

62.5%

100.0%

87.5%

COOLEY VENTURE FINANCING REPORT

ANTI-DILUTION PROTECTIONBy Quarter. During Q2 2014, approximately 94% of the transactions

included broad-based weighted average anti-dilution protection, relatively flat from the prior quarter. The
chart below breaks down the percentage of deals with broad-based weighted average, narrow-based
weighted average, full ratchet, and no anti-dilution protection.

100%
80%
60%
40%
20%
0%

2013 | Q1

2013 | Q2

Narrow-Based
Wgt-Avg

2013 | Q3

2013 | Q4

Full Ratchet

2014 | Q1

Broad-Based
Wgt-Avg

2014 | Q2

None

ANTI-DILUTION PROTECTIONBy Series.

2013 | Q1

Series
SeriesB B
Series B

Series
SeriesC C
Series C

80%

80%

80%
60%

80%
60%

60%

60%

60%
40%

60%
40%

40%

40%

40%
20%

40%
20%

20%

20%

20%
0%

20%
0%

0%

0%

100%
100%
100%
80%
80%
100%
80%
60%
60%
80%
60%
40%
40%
60%
40%
20%
20%
40%
20%
0%
0%
20%
0%

Series
SeriesA A
Series A

Series
SeriesB B
Series B

Series
SeriesC C
Series C

Series B

Series C

Series D or higher

Series A

Series B

Series C

Series D or higher

Series A

Series B

Series C

Series D or higher

0%

Series
SeriesD or
D orhigher
higher
Series D or higher

Series
SeriesA A
Series A

Series
SeriesB B
Series B

Series
SeriesC C
Series C

Series
SeriesD or
D orhigher
higher
Series D or higher

Series A

Series B

Series C

Series D or higher

60%
60%
80%
60%
40%
40%
60%
40%
20%
20%
40%
20%
0%
0%
20%
0%
0%

Series
SeriesA A
Series A

Series
SeriesB B
Series B

Series
SeriesC C
Series C

Series
SeriesD or
D orhigher
higher
Series D or higher

Series A

Series B

Series C

Series D or higher

2014
2014| Q2
| Q2

80%
80%
60%
60%
40%
40%
20%
20%
0%
0%

Series
SeriesB B
Series B

Series
SeriesC C
Series C

Narrow-Based
Wgt-Avg

Series A

Series
SeriesD or
D orhigher
higher
Series D or higher

Series
SeriesA A

Full Ratchet

Series
SeriesB B

Broad-Based
Wgt-Avg

Series B
Series B

Series C
Series C

Series D or higher
Series D or higher

2014 | Q2

100%

100%
100%

Series
SeriesA A
Series A

0%

Series A

2014 | Q1

2014 | Q1

100%
100%
100%
80%
80%
100%
80%

2014
2014| Q1
| Q1
2014 | Q2
100%
100%
100%
80%
80%
80%
60%
60%
60%
40%
40%
40%
20%
20%
20%
0%
0%
0%

0%

2013
2013| Q3
| Q3
2013 | Q4

2013 | Q4

2013
2013| Q4
| Q4
2014 | Q1
100%
100%
100%
80%
80%
80%
60%
60%
60%
40%
40%
40%
20%
20%
20%
0%
0%
0%

100%

100%
80%

2012
2012| Q2
| Q2
2013 | Q3

Series
SeriesD or
D orhigher
higher
Series D or higher

2013 | Q3

100%

100%
80%

2013
2013| Q1
| Q1
2012 | Q2

Series
SeriesA A
Series A

100%

100%

Series A

100%
100%
100%
80%
80%
80%
60%
60%
60%
40%
40%
40%
20%
20%
20%
0%
0%
0%

2012 | Q2

2013 | Q1
2012 | Q2

Series
SeriesC C

Series
SeriesD or
D orhigher
higher

None

100%

100%
80%

80%

80%
60%

60%

60%
40%

40%

40%
20%

20%

20%
0%
0%

0%

Series A
Series A

Series B
Series B

Series C
Series C

Series D or higher
Series D or higher

COOLEY VENTURE FINANCING REPORT

REDEMPTION PROVISION AND DIVIDEND PROVISION UTILIZATIONBy Region. We continued to

see a gap in the usage of redemption and accruing dividend provisions between the SF Bay Area/Silicon
Valley and other geographic regions during Q2 2014.

ACCRUING
DIVIDENDS
ACCRUING
DIVIDENDS

REDEMPTION
PROVISIONS
REDEMPTION
PROVISIONS
30%
30%

50%
50%
40%
40%

20%
20%

30%
30%
20%
20%

10%
10%

10%
10%
0%0%

0%0%

20132013
| Q1| Q120132013
| Q2| Q220132013
| Q3| Q320132013
| Q4| Q420142014
| Q1| Q120142014
| Q2| Q2

20132013
| Q1| Q120132013
| Q2| Q220132013
| Q3| Q320132013
| Q4| Q420142014
| Q1| Q120142014
| Q2| Q2

No CA

15.4%

15.2%

10.6%

10.3%

3.4%

4.6%

No CA

5.7%

6.7%

4.3%

3.4%

3.4%

0.0%

Other

35.4%

44.3%

38.7%

31.5%

34.0%

20.9%

Other

15.9%

14.8%

22.6%

14.8%

12.8%

9.3%

About The Cooley Venture Financing Report. This quarterly report provides data reflecting Cooleys experience in
venture capital financing terms and trends. Information is taken from transactions in which Cooley served as counsel to
either the issuing company or investors. For more information regarding this report, please contact the Cooley attorneys
listed below.
About Cooley. Cooleys attorneys solve legal issues for entrepreneurs, investors, financial institutions and established
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litigation, often where innovation meets the law.
Cooley has more than 750 lawyers across eleven offices in the United States and China.
BOSTON, MA.............Patrick Mitchell................+1 617 937 2315
BROOMFIELD, CO.......Brent Fassett.................. +1 720 566 4025
LOS ANGELES, CA.......David Young.....................+1 310 883 6416
NEW YORK, NY ..........Babak (Bo) Yaghmaie....+1 212 479 6556
PALO ALTO, CA ..........Matt Bartus...................... +1 650 843 5756
RESTON, VA..............Mike Lincoln.....................+1 703 456 8022

SAN DIEGO, CA ..........Tom Coll........................... +1 858 550 6013


SAN FRANCISCO, CA ...Craig Jacoby....................+1 415 693 2147
SEATTLE, WA.............Gordon Empey.............. +1 206 452 8752
WASHINGTON, DC ......Ryan Naftulin....................+1 202 842 7822
SHANGHAI ...............Patrick Loofbourrow... +86 21 6030 0608

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This Cooley Venture Financing Report is not intended to provide specific legal advice or to establish an attorney-client relationship. 2014
Cooley LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto, CA, 94306. +1 650 843 5000. Permission is granted to make and redistribute, without change, copies of this entire document provided that such copies are complete and unaltered and identify Cooley LLP as the
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