Young firms’ values rose 22 percent in 2005 to their highest level since the boom.

February 28, 2006

Venture capitalists rewarded startups for their progress in 2005, giving them higher estimations of their value since 2001, according to a study Tuesday.

The median startup valuation increased 22 percent during 2005, according to the study by VentureOne.

VCs estimate a startup’s value in advance of placing an investment in order to determine how much to pay for an equity stake. The median value of a high-tech startup just before it secures its next round of financing was $15.2 million in 2005, up from $12.5 million the year before, the study shows.

The valuation growth is the product of improving exit markets, according to VentureOne researcher Steve Harmston.

Later-stage information technology companies got the biggest boost during 2005. The median valuation rose to $30.3 million, up $8 million from $22.3 million in 2004.

Later-stage healthcare companies edged down, with median valuations of $42.8 million, during 2005, down $1.2 million from $44 million in 2004.

Better Terms

Startups experienced a 45 percent average price increase during the fourth quarter, according to a different study, prepared by the law firm Fenwick & West. This is the highest level the firm has recorded in the last four years.

Attendant to the increase in median valuations, more startups upped their valuation during the fourth quarter of 2005 than at any time since the bubble, according to the survey. Some 69 percent of all the fourth quarter’s venture financing rounds saw an increase in valuation, that’s up from 60 percent during the same period in 2004.