Invested Capital Decreases Across All Stages of Financing, With Largest Decreases in Late-Stage Rounds; Percentage of Up Rounds Remains Below 70% of Deals
Cooley handled 195 reported venture capital financings in Q4 2023, representing $4.2 billion of invested capital, a decrease from 228 reported financings and $6.9 billion of invested capital in Q3 2023. This ends the upward trend we witnessed over the past two quarters in both invested capital and deal volume and represents the lowest invested capital and deal volume since Q1 2017. In Q4 2023, deal volume decreased across all stages of financing – except for Series C, which had a slight uptick from 13 reported deals in Q3 2023 to 18 reported deals in Q4 2023. Series A deals had the largest decrease in deal totals, which declined from 84 deals in Q3 2023 to 63 deals in Q4 2023. All stages of financing demonstrated decreased invested capital, with the biggest decrease noted in Series D and later rounds – decreasing from $2.2 billion of invested capital in Q3 2023 to only $451.7 million of invested capital in Q4 2023.
Median pre-money valuations decreased for most stages of financing, with only Series A and Series B rounds seeing increases – though the increase for Series A was slight. Series C median pre-money valuations decreased to the lowest Series C median since Q3 2020. While Series D and later rounds saw the largest decrease in median pre-money valuations, pre-money valuations greater than $100 million (at all stages) increased to 27% of deals, as compared with 24% of deals in Q3 2023.
The percentage of down and flat rounds remained relatively high during Q4 2023, with down rounds representing 25% of deals for the quarter and flat rounds representing 7%. Except in Q3 2023, down rounds have not exceeded 25% of deals for the quarter in any quarter in the history of this report, and the percentage of flat rounds has been at 5% or below for most quarters. The percentage of deals representing up rounds increased slightly to 68% in Q4 2023, but remains low – with Q3 and Q4 2023 representing the only two quarters in this report’s history when the percentage of up rounds was below 70%.
Other (nonvaluation) deal terms in Q4 2023 remained generally favorable to companies. After rising to 7% of reported deals in Q3 2023, the percentage of deals with a pay-to-play provision decreased to 4.6% of deals in Q4 2023. The percentage of deals with non-participating preferred stock remained high at 95% of deals for Q4 2023. In contrast to these two favorable trends for companies, the percentage of deals with a recapitalization increased slightly in Q4 2023 to 2.6% of deals. Before Q2 2023, the percentage of deals involving a recapitalization had not risen above 2.5% of deals since Q4 2014.
In PitchBook’s Q3 2023 Global League Tables, Cooley was again named the #1 law firm in the US and globally for representation of companies in venture capital financings, as well as the second most active law firm in the US and globally for representation of investors in venture capital financings. In addition, Cooley ranked as the most active law firm in venture financing deals in the industry sectors of pharma and biotech and consumer goods and services.
Spotlight on technology
The downward trend in deal volume and invested capital continued in Q4 2023 for tech company venture financings. In Q4 2023, Cooley handled 109 reported tech company financings, representing $1.9 billion of invested capital. This represents the lowest deal volume for tech companies since Q3 2018, when Cooley handled 113 reported deals, and the lowest amount raised since Q1 2017. Consistent with the numbers for financings across all combined industries, the deal count and invested capital for tech company venture financings were down significantly compared to one year ago, when Cooley handled 184 reported venture financing deals for tech companies, representing $4.7 billion of invested capital. The average reported deal size of venture financings for tech companies was just under $17.8 million in Q4 2023, which is the lowest average deal size for tech company venture financings since Q1 2018.
Spotlight on life sciences
In Q4 2023, Cooley handled 47 reported venture financings of life sciences companies, representing $1.4 billion of invested capital. The deal count remained about the same compared to last quarter, but invested capital decreased from $2.3 billion. Reported deal sizes for venture financings of life sciences companies also decreased in Q4 2023 to an average deal size of $30 million, compared with $48.9 million in Q3 2023. The number of venture financing deals for life sciences companies also was down compared to one year ago – in Q4 2022 – when Cooley handled 61 reported venture financing deals for life sciences companies. However, despite the decrease in deal count, the invested capital and average deal size increased compared to one year ago, when invested capital was just more than $1.3 billion and the average deal size was $21.2 million. The percentage of life sciences venture financings structured in tranches decreased in Q4 2023 to 23% – down from the 46% high of tranche-structured reported financings for life sciences companies seen in Q3 2023.