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Fenwick and West analyzed 128 venture financings completed in q4 2008 for companies headquartered in the bay area and found that there has been a significant increase in the proportion of down rounds, with this trend accelerating:

“During the fourth quarter, up rounds exceeded down rounds 54% to 33% with 13% flat, the lowest amount by which up rounds exceeded down rounds since the third quarter of 2004,” said Barry Kramer, partner in the firm and co-author of the survey.

“Perhaps more ominously,” he said, “down rounds increased each month through the quarter, and for December 2008, 45% of all financings were down rounds, compared to 48% up and 7% flat.”

Note that bolding – almost as many down rounds as up rounds in december! Additionally, they found that in q4:

  • 21% of B rounds were down rounds
    43% of C rounds were down rounds
    22% of D rounds were down rounds
  • It’s hard to tell how many data points go into these numbers, but the proportion of series C down rounds is especially notable. This may indicate that in the past couple of years a high proportion of B rounds were overpriced. A round pricing has historically been fairly consistent across the last 10 years, which may explain why there are fewer B down rounds.

    It is worth reading Fenwick’s full survey as it gives good data on the frequency of many other important venture financing terms such as particpating preferred, full ratchet dilution, multiple liquidation preferences etc.