Venture Capital: It’s a Downer

Being able to secure venture capital financing in the recession is something of an achievement. But getting that money now appears to be coming at a cost.

According to a new survey from law firm Fenwick & West, the terms of venture financing in the first quarter of 2009 were heavily dominated by “down” rounds–industry jargon for saying that companies are getting much lower valuations than they previously commanded. Down rounds exceeded “up” rounds by 46 to 25 percent, with 29 percent flat, notes the survey. That’s the first time since the fourth quarter of 2003 that down rounds have outweighed up rounds.

That’s bad news for existing venture investors in a startup, whose piece of the company is devalued. It’s also bad news for startups, which are worth less than they once thought.

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