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COOLEY VENTURE FINANCING REPORT

Q3 2014—Valuations Plateau on Company-Friendly Deal Terms*
Overall financing activity in the third quarter

TRENDS IN FINANCIAL TERMS

of 2014 remained robust, though declining
from the prior quarter. In Q3 2014, Cooley

TOTAL DEAL VOLUME AND AGGREGATE DOLLARS RAISED. Overall deal volumes and
aggregate dollars raised decreased from Q2, but remained at historically strong levels.

handled 102 disclosable deals, representing
more than $1.5 billion of invested capital. The
percentage of up rounds continued to rise,

$4

200

reaching more than 83% of deals during the

$3

150

$2

100

transactions were Series A deals. This is the

$1

50

highest level of early-stage deals we have

$0

quarter. The mix of deals during the quarter
was also of note. More than 52% of Q3

0
2013 | Q2

seen in more than 10 years. The data also
pointed to a flattening of median pre-money

valuations during the quarter. We saw a slight

# of Deals
Amt (billions)

2013 | Q3 2013 | Q4

2014 | Q1

2014 | Q2 2014 | Q3

109

115

96

120

178

102

$1.28

$1.14

$1.13

$2.51

$3.66

$1.52

decrease in valuations in Series A, B and C
transactions from the prior quarter. Series D+
deals saw an increase in median pre-money
valuations to $200 million. The percentage of

DEAL BREAKDOWN—By Series.

Q3 deals with a median pre-money valuation
of greater than $100 million was 17%, a slight
decrease from the prior two quarters.
Third quarter deal terms were indicative of
a company-friendly investing environment.

35%

38%

12%

27%

27%

26%

16%
48%

20%

10%

Liquidation preferences of greater than

12%

17%

27%

43%

17%
24%

1x decreased in all deal stages with the
exception of Series C transactions. Also, the

2013 | Q2

2013 | Q3

16%

15%

2013 | Q4

2014 | Q1

percentage of deals utilizing fully participating
preferred provisions decreased in early17% transactions.
stage
deals and Series D+
27%
38%

35%

12%
12%

Additionally, the percentage
of recapitalization
20%
10%

transactions
remained historically
low during
27%
26%

48%

27%

43%

17%

19%

24%

10%
40%

14%
52%
23%

25%

the quarter at just 3% of deals. However, the
percentage
2013 | Q2 of deals structured
2013 | Q3in tranches

2013 | Q4

2014 | Q1

2014 | Q2

2014 | Q3

rose from the prior quarter, but remained lower
than historical norms. During Q3, pay-to-play

Series A

Series B

Series C

Series D or Higher

provisions rose slightly from prior quarters,
while more than 80% of deals utilized dragalong provisions.

*Quarterly analysis based upon 102 completed deals totaling approximately $1.5 billion in the third quarter of 2014; 178
completed deals totaling approximately $3.7 billion in the second quarter of 2014; 120 completed deals totaling approximately
$2.5 billion in the first quarter of 2014; 96 completed deals totaling approximately $1.1 billion in the fourth quarter of 2013; 115
completed deals totaling approximately $1.1 billion in the third quarter of 2013 and 109 completed deals totaling approximately
$1.3 billion in the second quarter of 2013. Please note our past quarterly deal numbers can change based on data not available
at the time of the report.

Q3 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 83% of deals, a level not seen since 2011.

100%
77%

75%

64%

78%

73%

80%

84%

50%
25%
0%

2013 | Q2 2013 | Q3

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

MEDIAN PRE-MONEY VALUATION ($ millions)—By Series. Median pre-money valuations slightly
decreased from the prior quarter, with the exception of Series D+ transactions.

SERIES A

SERIES B
$50

$20
$14.4

$15

$15.9

$15.0

$40
$30

$10.5
$10

$8.1

$8.0

$35.0

$26.0

$10
$0

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

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

SERIES C

SERIES D or HIGHER

$150

$200

$125.0
$85.5
$55.0

$150

$97.5

$100

$60.9

$50

$200.0

$170.0

$120.0

$100

$0

$40.0

$20

$5
$0

$44.3
$38.6

$37.0

$130.6
$76.5

$140.0

$75.0

$50
$0

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

2

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

COOLEY VENTURE FINANCING REPORT

PRE-MONEY VALUATIONS OF MORE THAN $100 MILLION—By Deal. More than 17% of Q3 deals had

a median pre-money valuation greater than $100 million. This was a slight decrease from the prior quarter.

25%

22%
18%

18%

20%

18%

17%

15%
8%

10%
5%
0%

2013 | Q2 2013 | Q3

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

LIQUIDATION PREFERENCE—By Series. Although a 1x liquidation preference remained the norm across

all series of financings, we observed a decrease 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 | Q2100%

94.1%

2.9%

SERIES A
2.9%

0.0%

2013 | Q380%

96.8%

3.2%

0.0%
SERIES C

0.0%

0.0%

100%
2013 | Q460%

85.7%

5.7%

0.0%

0.0%

8.6%

80%
2014 | Q140%

97.5%

2.5%

0.0%

0.0%

0.0%

60%
2014 | Q2 20% 94.6%

5.4%

0.0%

0.0%

2014 | Q340%
0%

97.8%

2.2%

0.0%

<=1X

>1X-=<2X

<=1X

>1X-=<2X

20%

None

<=1X

>1X-=<2X

>2X-=<3X

>3X

None

95.6%

0.0%

SERIES B
0.0%

0.0%

4.4%

2013 | Q380%

87.5%

12.5%
0.0%
0.0%
SERIES D or HIGHER

0.0%

100%
2013 | Q460%

90.0%

10.0%

0.0%

0.0%

0.0%

80%
2014 | Q140%

91.3%

4.4%

4.4%

0.0%

0.0%

0.0%

2014 | Q260%
20%

91.4%

8.6%

0.0%

0.0%

0.0%

0.0%

0.0%

2014 | Q340%
0%

95.0%

5.0%

0.0%

0.0%

0.0%

>2X-=<3X

>3X

None

<=1X

>1X-=<2X

>2X-=<3X

>3X

None

>2X-=<3X

>3X

None

<=1X

>1X-=<2X

>2X-=<3X

>3X

None

2013 | Q2
100%

0.0%

20%

0%

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

88.9%

11.1%

0.0%

0.0%

0.0%

2013 | Q2

2013 | Q3

83.3%

11.1%

0.0%

0.0%

5.6%

2013 | Q3

86.7%

2013 | Q4

88.9%

0.0%

11.1%

0.0%

0.0%

2013 | Q4

100.0%

2014 | Q1

93.8%

6.2%

0.0%

0.0%

0.0%

2014 | Q1

86.7%

2014 | Q2

96.3%

0.0%

3.7%

0.0%

0.0%

2014 | Q2

2014 | Q3

83.3%

16.7%

0.0%

0.0%

0.0%

2014 | Q3

2013 | Q2

<=1X

3

>3X

None

0.0%

0.0%

4.2%

6.7%

6.7%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

13.3%

0.0%

0.0%

0.0%

81.0%

14.3%

4.8%

0.0%

0.0%

100.0%

0.0%

0.0%

0.0%

0.0%

70.8%

>1X-=<2X

>2X-=<3X

25.0%

COOLEY VENTURE FINANCING REPORT

LIQUIDATION PREFERENCE: PARTICIPATION FEATURES—By Series. We saw a marked decrease in

the percentage of deals utilizing fully participating preferred provisions in Series A and D+ transactions
during the quarter.

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

2013 | Q280%
80% 0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

0.0%

12.9%

2013 | Q3

79.2%

0.0%
4.2%
4.2%
SERIES
SERIES
D orDHIGHER
or HIGHER

12.5%

2013 | Q4

80.0%

5.7%

2.9%

0.0%

11.4%

2013 | Q4

50.0%

10.0%

5.0%

0.0%

35.0%

2014 | Q1

80.0%

7.5%

0.0%

0.0%

12.5%

34.8%

2014 | Q2

76.8%

1.8%

7.1%

1.8%

12.5%

86.7%

4.4%

2.2%

2.2%

4.4%

20%
20%
60%
60%
0%0%

40%
40%
2014
| Q3

NoneNone

0.0%

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

3.2%
3.2%
SERIES
SERIES
C C

40%
40%
80%
80%

0.0%

NoneNone

100%
100%

80.6%

2013
| Q2
80%
80%

0.0%

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

2013 | Q3

60%
60%
100%
100%

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

60%
60%
100%
100%

40%
40%
80%
80%
2014 | Q1
52.2%
20%
20%
60%
2014 | Q2 60%68.6%
0%0%
2014 | Q340%
40%75.0%

Full Full

20%
20%

8.7%

4.4%

0.0%

8.6%

2.9%

0.0%

20.0%

5.0%

0.0%

0.0%

20.0%

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 | Q2

0.0%

0.0%

0.0%

0.0%

2013 | Q3

83.3%

0.0%

5.6%

0.0%

2013 | Q4

33.3%

33.3%

0.0%

0.0%

2014 | Q1

75.0%

0.0%

0.0%

6.2%

2014 | Q2

92.6%

0.0%

0.0%

3.7%

2014 | Q3

66.7%

8.3%

16.7%

0.0%

2013 | Q2

0.0%

0.0%

0.0%

0.0%

0.0%

11.1%

2013 | Q3

33.3%

2013 | Q4

60.0%

6.7%

13.3%

0.0%

20.0%

44.4%

11.1%

22.2%

0.0%

22.2%

18.8%

2014 | Q1

40.0%

0.0%

6.7%

0.0%

53.3%

3.7%

2014 | Q2

42.9%

14.3%

14.3%

9.5%

19.0%

8.3%

2014 | Q3

55.6%

22.2%

11.1%

0.0%

11.1%

0.0%

4

COOLEY VENTURE FINANCING REPORT

PERCENTAGE OF DEALS WITH PARTICIPATING PREFERRED—By Quarter and Series. In Q3,
we witnessed another decrease in the percentage of deals with participating preferred provisions. This
continued a trend seen since Q4 2013.
50%
40%

39%
32%

30%

30%

23%

26%

22%

20%
10%
0%

2013 | Q2 2013 | Q3 2013 | Q4

2014 | Q1 2014 | Q2 2014 | Q3

60%

40%

20%

0%
2013 | Q2

2013 | Q3

2013 | Q4

2014 | Q1

2014 | Q2

2014 | Q3

Series A

23.7%

30.0%

25.0%

25.0%

34.2%

31.6%

Series B

18.4%

25.0%

35.7%

34.4%

29.0%

26.3%

Series C

13.2%

15.0%

21.4%

12.5%

5.3%

21.0%

Series D or Higher

44.7%

30.0%

17.9%

28.1%

31.6%

21.0%

RECAPITALIZATIONS—By Quarter. The percentage of recapitalization transactions remained at

historically low levels in Q3.

15%

10%

9%

8%
6%
4%

5%

3%

3%

0%

2013 | Q2 2013 | Q3

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

TRANCHED DEALS—By Quarter. The percentage of deals structured in tranches rose slightly in Q3 from

the prior quarter.

30%
23%
20%

18%

17%

15%

12%
8%

10%

0%

2013 | Q2

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

5

COOLEY VENTURE FINANCING REPORT

PERCENTAGE OF DEALS WITH PAY-TO-PLAY—By Quarter and Series. The percentage of deals utilizing

pay-to-play provisions increased in Q3.
15%
10%

10%

5%

6%

5%

4%

2%

3%

0%

2013 | Q2 2013 | Q3

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

60%

40%

20%

0%

Series A

2013 | Q2

2013 | Q3

2013 | Q4

2014 | Q1

2014 | Q2

2014 | Q3

0.0%

0.0%

0.0%

0.0%

3.2%

3.4%

Series B

0.0%

4.2%

0.0%

9.5%

0.0%

15.4%

Series C

44.4%

0.0%

12.5%

0.0%

0.0%

0.0%

Series D or Higher

16.7%

14.3%

0.0%

9.1%

7.1%

0.0%

PERCENTAGE OF DEALS WITH DRAG-ALONG—By Quarter and Series. Utilization of drag-along

provisions decreased slightly from the prior quarter.

100%
90%

82%

80%
70%

82%

80%

72%
66%

65%

60%
50%

2013 | Q2 2013 | Q3 2013 | Q4 2014 | Q1 2014 | Q2 2014 | Q3
100%
80%
60%
40%
20%
0%

2013 | Q2

2013 | Q3

2013 | Q4

2014 | Q1

2014 | Q2

2014 | Q3

Series A

73.5%

67.7%

77.1%

85.0%

85.7%

80.0%

Series B

82.6%

66.7%

80.0%

87.0%

88.6%

85.0%

Series C

66.7%

72.2%

77.8%

62.5%

77.8%

83.3%

Series D or Higher

50.0%

86.7%

55.6%

100.0%

76.2%

66.7%

6

COOLEY VENTURE FINANCING REPORT

ANTI-DILUTION PROTECTION—By Quarter. During Q3 2014, approximately 98% of the transactions

included broad-based weighted average anti-dilution protection, a slight increase 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 | Q2

2013 | Q3

Narrow-Based
Wgt-Avg

2013 | Q4

2014 | Q1

Full Ratchet

2014 | Q2

Broad-Based
Wgt-Avg

2014 | Q3

None

ANTI-DILUTION PROTECTION—By Series.
2013 | Q2
2013 | Q2

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

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| Q3
| Q3

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

7

Series
SeriesB B

Broad-Based
Wgt-Avg

Series B
Series B

Series C
Series C

Series D or higher
Series D or higher

2014 | Q3

100%

100%
100%

Series
SeriesA A
Series A

0%

Series A

2014 | Q2

2014 | Q2

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

2014
2014| Q2
| Q2
2014 | Q3
100%
100%
100%
80%
80%
80%
60%
60%
60%
40%
40%
40%
20%
20%
20%
0%
0%
0%

0%

2013
2013| Q4
| Q4
2014 | Q1

2014 | Q1

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

100%

100%
80%

2013
2013| Q3
| Q3
2013 | Q4

Series
SeriesD or
D orhigher
higher
Series D or higher

2013 | Q4

100%

100%
80%

2013
2013| Q2
| Q2
2013 | Q3

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%

2013 | Q3

2013 | Q3

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 UTILIZATION—By 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 Q3 2014.

ACCRUING
DIVIDENDS
ACCRUING
DIVIDENDS

REDEMPTION
PROVISIONS
REDEMPTION
PROVISIONS
50%
50%

25%
25%

40%
40%

20%
20%

30%
30%

15%
15%

20%
20%

10%
10%

10%
10%

5%5%

0%0%

0%0%

20132013
| Q2| Q220132013
| Q3| Q320132013
| Q4| Q420142014
| Q1| Q120142014
| Q2| Q220142014
| Q3| Q3

20132013
| Q2| Q220132013
| Q3| Q320132013
| Q4| Q420142014
| Q1| Q120142014
| Q2| Q220142014
| Q3| Q3

No CA

14.6%

10.2%

8.8%

6.7%

11.1%

11.4%

No CA

6.4%

4.1%

2.9%

4.4%

1.2%

2.9%

Other

44.3%

36.4%

30.6%

28.0%

33.0%

20.9%

Other

14.8%

21.2%

14.5%

13.3%

13.4%

19.4%

About The Cooley Venture Financing Report. This quarterly report provides data reflecting Cooley’s 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. Cooley’s attorneys solve legal issues for entrepreneurs, investors, financial institutions and established
companies. Clients partner with Cooley on transformative deals, complex IP and regulatory matters, and bet-the-company
litigation, often where innovation meets the law.
Cooley has more than 800 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, 3175 Hanover Street, Palo Alto, CA , Palo Alto, CA, 94304. +1 650 843 5000. Permission is granted to make and redistribute,
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