From the WSGR Database: Financing Trends for Q3 2017

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1 THE ENTREPRENEURS REPORT Private Company Financing Trends From the WSGR Database: Financing Trends for and Rounds by Quarter and Rounds by Quarter 10 9 % of All Financings IN THIS ISSUE Financing Trends for... Pages 1-6 Private Company Financing Deal Terms... Page 4 Bridge Loans... Page 5 Bridge Loans Deal Terms... Page 6 Flat The strong venture financing market of hit particularly hard, falling from $149.0 has continued in. Amounts million in to $87.7 million in raised in kept pace with the even though the median amount raised near-record highs earlier in the year. In was slightly higher in deals than in. addition, up rounds constituted 8 of Series B and later financings, a proportion similar to those in and. The median amounts raised in bridge loans fell sharply in, to just above half the amounts of the prior quarter, This strong venture financing market making the lowest medians in the past does show signs of cooling, however. As five years. More post-series A bridges reported elsewhere, overall deal volume had interest rates greater than, and declined, as did median pre-money maturity periods of less than 12 months, valuations. Median pre-money valuations reflecting a continuing trend towards for Series C and later financings were smaller, shorter-term, higher-rate loans. (Continued on page 2)

2 Later-stage companies that are able to points from in to in raise money appear to be raising as much. The percentage of flat rounds also million. The median pre-money valuation cash as possible while the market remains decreased, from 1 in to in for Series C and later deals took the largest relatively healthy, but the declining number. tumble, falling from $149.0 million in of transactions indicates that over the next to $87.7 million in, although several quarters, many other later-stage Valuations companies will either need to hunker down Pre-money valuations were down for all or face the possibility of failing. remaining close to the full-year median of $89.1 million. financing rounds in, with late- Amounts Raised stage financings taking the most significant and Rounds hit. Early-stage valuations fell from the near- The median amount raised for Seed and rounds fell slightly in, record high of $15.9 million in to Series A rounds fell from the near-record high constituting 8 of Series B and later $11.0 million in. The median pre-money of $4.6 million in to $3.2 million in financings versus 8 in, but higher valuation for Series B rounds also saw a. The median amount raised for Series B than the five-year median of 8. That decrease from the prior quarter, dropping rounds closely tracked to that of, decrease was mirrored by a notable uptick from $51.4 million in to $45.0 dipping only slightly from $12.0 million to in down rounds, rising 10 percentage million in, though still well above the $11.0 million in, and still well over the median pre-money valuation of $27.4 full-year median of $7.0 million. Median Pre-Money Valuation Median Pre-Money Valuation $ Millions Full Year Full Year Full Year Full Year Full Year Series A (excludes Angel) Series B 2 Series C and Later

3 Median Amount Raised- Equity Equity Financings Median Amount Raised Financings $ Millions Full Year Full Year Full Year Full Year Full Year Series A (excludes Angel) Series B Series C and Later While pre-money valuations for Series C from 3 of all such rounds in to to 6 in - the inverse of the and later financings decreased in, 3 in -. Pari passu liquidation distribution of non-participating vs. the median amount raised in Series C and preferences increased from 57% of all such participating down-round financings. later financings rose, from $18.0 million in rounds in to 6 in -. to $19.5 million in. One mega-deal that raised over $100 million The percentage of financings with no in contributed to the high median, participation increased from 8 in but even excluding this deal, the median to 8 in -, a higher amount raised remained above average percentage than in any of the prior four full at $16.2 million, exceeding the five-year years. When looking only at down rounds, median of $13.6 million. however, the percentage of financings Deal Terms Preferred The use of senior liquidation preferences in post-series A rounds declined slightly, with no participation fell dramatically from in to 3 in -, while those with participation conversely increased significantly from 2 in 3 Data on deal terms such as liquidation preferences, dividends, and others are set forth in the table of page 4. To see how the terms tracked in the table can be used in the context of a financing, we encourage you to draft a term sheet using our automated Term Sheet Generator, which is available in the Start-s and Venture Capital section of the firm s website at

4 Private Company Financing Deal Terms (WSGR Deals)1 All Rounds2 All Rounds2 All Rounds2 - All Rounds2 - - Senior Pari Passu with Other Preferred % Junior Complex Not Applicable Participating - Cap Participating - No Cap Non-participating Yes, Cumulative 1 1 7% 2 1 Yes, Non-cumulative None Weighted Average - Broad Weighted Average - Narrow 1 1 Ratchet Other (Including Blend) None Applicable to This Financing 1 1 Applicable to Future Financings None % 9 97% 9 97% Investor Option Mandatory 7% None % Liquidation Preferences - Series B and Later Participating vs. Non-participating Dividends Anti-dilution Provisions Pay to Play - Series B and Later Redemption We based this analysis on deals having an initial closing in the period to ensure that the data clearly reflects current trends. Please note the numbers do not always add up to 10 due to rounding. Includes flat rounds and, unless otherwise indicated, Series A rounds. 3 Note that the All Rounds metrics include flat rounds and, in certain cases Series A financings as well. Consequently, metrics in the All Rounds column may be outside the ranges bounded by the Rounds and Rounds columns, which will not include such transactions

5 Bridge Loans The median amount raised in pre-series A bridges tumbled from $0.20 million in to $0.11 million in, well below the $0.28 million median for full-year. The median amount raised in postseries A bridges similarly fell, declining from $1.30 million in to $0.70 from 2 in to 2 in - increased from 2 in to 4 in. The number of pre-series A bridge -, reflecting a trend toward loans that are convertible into equity at shorter-term, higher-rate loans. Warrants discounted prices increased from 8 in were included in 1 of post-series A to 8 in -, though 8 bridge loans, in line with the of such of those that do convert at a discount loans having warrants in. Of those received a discount rate of 2 or more with warrants, 5 had warrant coverage on conversion. under 2 in -, up from 2 in, and those with coverage of 2 million in, representing a $1.0 million decline from the full-year median. Twenty-two percent of post-series A or more dropped from in to bridge loans had interest rates greater 5 in -. than in - a significant Deal Terms Bridge Loans increase from the figure in. In The percentage of pre-series A bridge addition, the percentage of loans with loans subordinated to other debt rose maturity periods of less than 12 months Median Amount Raised - Bridge Loans Median Amount Raised Bridge Loans $ Millions Full Year Full Year Full Year Full Year Full Year Pre-Series A Bridge Post-Series A Bridge 5

6 Bridge Loans Deal Terms (WSGR Deals)1 PreSeries A PreSeries A PreSeries A - PreSeries A PostSeries A PostSeries A PostSeries A - PostSeries A Interest rate less than Interest rate at Interest rate greater than 7% Maturity less than 12 months Maturity at 12 months Maturity more than 12 months % Debt is subordinated to other debt Loan includes warrants Warrant coverage less than N/A 6 47% 2 5 Warrant coverage at 2 N/A 7% 1 Warrant coverage greater than N/A 3 47% 6 3 Principal is convertible into equity % Conversion rate subject to price cap4 67% Conversion to equity at discounted price Discount on conversion less than Discount on conversion at % 4 4 Discount on conversion greater than % 2 27% Bridge Loans Conversion to equity at same price as other investors We based this analysis on deals having an initial closing in the period to ensure that the data clearly reflects current trends. Please note the numbers do not always add up to 10 due to rounding. Of the post-series A bridges with warrants, 3 also had a discount on conversion into equity. Of the post-series A bridges with warrants, 5 also had a discount on conversion into equity. Of the post-series A bridges with warrants, 3 also had a discount on conversion into equity. Of the - post-series A bridges with warrants, 6 also had a discount on conversion into equity. 3 Of the pre-series A convertible bridges, 9 had automatic conversion and 1 had voluntary conversion. Of the - pre-series A convertible bridges, 9 had automatic conversion and had voluntary conversion. Of the post-series A convertible bridges, 9 had automatic conversion and had voluntary conversion. Of the - post-series A convertible bridges, 8 had automatic conversion and had voluntary conversion. The median dollar threshold for a qualified financing in pre- and post-series A bridges was $1 million and $4 million, respectively. The - median dollar threshold for a qualified financing in pre- and post-series A bridges was $2 million and $7 million, respectively. 4 The median price cap in pre- and post-series A bridges was $6 million and $25 million, respectively. The - median price cap in pre- and post-series A bridges was $8 million and $23 million, respectively. 5 Of the post-series A bridges that had a discount on conversion into equity, 1 also had warrants. Of the post-series A bridges that had a discount on conversion into equity, 2 also had warrants. Of the post-series A bridges that had a discount on conversion into equity, also had warrants. Of the - post-series A bridges that had a discount on conversion into equity, 1 also had warrants

7 WSGR Methodology The //Flat analysis is based on WSGR deals having an initial closing in the period reported to ensure that the data clearly reflects current trends. For purposes of the statistics and charts in The median pre-money valuation is calculated based on the pre-money valuation given at the time of the initial closing of the round. If the issuer has a closing in a subsequent quarter, the original pre-money valuation is used in the calculation of the median for that quarter as well. this report, our database includes venture financing transactions in which Wilson Sonsini Goodrich & A substantial percentage of deals have multiple closings that span fiscal quarters. The median amount raised is calculated based on the aggregate amount raised in the reported quarter. Rosati represented either the company or one or more For purposes of this report, Series Seed transactions are included with Series A transactions. of the investors. Recent Publications Our publications can help you stay informed about trending topics and updates in your industry and beyond. Visit our website at and select Insight to see the newest publications and resources, including our most recent venture finance and industry newsletters. Newsletters Start-/Venture Finance The Entrepreneurs Report 1H The Entrepreneurs Report Industry Newsletters The Digital Health Report Fall/ Winter The Life Sciences Report Summer 7 The Life Sciences Report Winter

8 Dow Jones VentureSource Ranks WSGR No. 1 for - Venture Financings Dow Jones VentureSource recently ranked Wilson Sonsini Goodrich & Rosati as the leading law firm for U.S. venture financings in the first, second, and third quarters of. Dow Jones VentureSource s legal rankings for - issuer-side venture financing deals placed WSGR ahead of all other firms by the total number of rounds of equity financing raised on behalf of clients. The firm is credited as the legal advisor in 154 rounds of financing, while its nearest competitor advised on 115 rounds of financing. According to VentureSource, WSGR ranked first for - issuer-side U.S. deals in the following industries: business and financial services, clean technology, communications and networking, consumer goods, electronics and computer hardware, energy and utilities (tie), healthcare, industrial goods and materials, information technology, medical devices and equipment, and software. The firm ranked second in biopharmaceuticals and consumer services. In the Bay Area region, WSGR was credited with 82 venture deals in -, while its nearest competitor advised on 40 deals. In addition, the firm ranked first in the Pacific Northwest and Texas. 650 Page Mill Road, Palo Alto, California Phone Fax Austin Beijing Boston Brussels Hong Kong Los Angeles New York Palo Alto San Diego San Francisco Seattle Shanghai Washington, DC Wilmington, DE For more information on the current venture capital climate, please contact any member of Wilson Sonsini Goodrich & Rosati s start-ups and venture capital practice. To learn more about WSGR s full suite of services for entrepreneurs and early-stage companies, please visit the start-ups and venture capital section of wsgr.com. For more information about this report or if you wish to be included on the subscription list, please contact EntrepreneursReport@wsgr.com. There is no subscription fee. This communication is provided as a service to our clients and friends and is for informational purposes only. It is not intended to create an attorney-client relationship or constitute an advertisement, a solicitation, or professional advice as to any particular situation. Wilson Sonsini Goodrich & Rosati, Professional Corporation. All rights reserved.