Venture Capital

Are enterprise tech VC valuations on their way down?

April 24, 2014: 11:42 AM ET

VC valuations for enterprise tech startups have been rising for years. But things are beginning to change.


FORTUNE -- The private markets typically follow the public markets on the way up, and also follow them on the way down. And that seems to be what we're seeing when it comes to venture capital deals for enterprise software companies.

Take a look at the recent stock performance of some of VC-backed enterprise software companies that have gone public within the past several years: WorkDay (WDAY) is down 13.88% over the past three months. Talbeau Software (DATA) is off 15.48%. And Splunk (SPLK) is down 20.18%. In short, public market investors are moving a bit from growth to value.

It's far too early for us to have VC valuation data for the sector, but several investors tell me that they've already seen an impact of this downward shift. Not surprisingly, it's a cascade that first hit pre-IPO rounds, and is working its way through the venture lifecycle to earlier stages.

"There has been a real 'pay-it-forward' mentality when it's come to enterprise software valuations," explains Gordon Ritter, a partner with Emergence Capital Partners whose track record includes investments in and Veeva Systems (VEEV). "So it's pretty natural that as public market valuations pull back, entrepreneurs and VCs have had to adjust."

Veeva stock, for what its worth, is down more than 30% over the past quarter.

Ritter adds that he knows of several situations in which entrepreneurs have accepted lower valuations than they might have earlier this year, just so that they can get their deals done faster.

Sean Dempsey of Merus Capital says that he has not yet seen much valuation change at the Series A level, but acknowledges that it's probably just a matter of time. "You've seen so many hedge funds and other firms like that get into the later-stage space, and you just know that it's not going to end well," he says. "We invest in Series A so we're at the end of the lag, but when some of these larger late-stage deals go bad we'll feel some repercussions."

It's also worth noting, however, that neither Ritter, Dempsey nor other VCs I spoke with seem concerned that the enterprise software sector could experience a long-term freeze. Not only because of confidence in continued macro economic recovery, but also because the value proposition of things like cloud make it unlikely that big corporations would resist spend on such new technologies, even if things slowed down (as they have done in the past).

Sign up for Dan Primack's daily email newsletter on deals and deal-makers:

Posted in:
  • Deals of the day: Biomet sold for $13 billion

    To get deals in your inbox each morning, sign up for our Term Sheet newsletter

    Venture Capital Deals

    Crispr Therapeutics, a Swiss developer of gene-editing technology, has raised $25 million in Series A funding from Versant Ventures. ShopKeep POS, a New York-based provider of cloud-based point-of-sale solutions for retailers,, has raised $25 million in Series C funding. Thayer Street Partners led the round, and was joined by return backers Canaan Partners, TTV Capital and Tribeca Venture Partners. Bitmoon MORE

    - Apr 24, 2014 10:35 AM ET
  • Deals of the day: Pure Storage raises $250 million

    To get deals in your inbox each morning, sign up for our Term Sheet newsletter

    Venture Capital Deals

    Pure Storage, a Mountain View, Calif.-based all-flash enterprise storage array company, has raised $225 million in Series F funding at a pre-money valuation north of $3 billion. Wellington Management was joined by return backers T. Rowe Price, Tiger Global, Greylock Partners, Index Ventures, Redpoint Ventures and Sutter Hill Ventures. The company has now raised $470 MORE

    - Apr 23, 2014 11:27 AM ET
  • Deals of the day: Botox maker gets $50 billion buyout offer

    To get deals in your inbox each morning, sign up for our Term Sheet newsletter

    Venture Capital Deals

    Principia Biopharma Inc., a South San Francisco-based developer of small molecule drugs within the fields of autoimmune disease and oncology, has raised $50 million in Series B funding. Sofinnova Ventures led the round, and was joined by return backers Morgenthaler Ventures, New Leaf Venture Partners, OrbiMed, SR One and Mission Bay Capital. The company previously raised $40 MORE

    - Apr 22, 2014 10:10 AM ET
  • Deals of the day: What will Comcast sell?

    To get deals in your inbox each morning, sign up for our Term Sheet newsletter

    Venture Capital Deals

    AdRoll, a San Francisco-based provider of digital ad retargeting solutions, has raised $70 million in third-round funding led by existing backer Foundation Capital. New investors included Institutional Venture Partners, Northgate Capital, Performance Equity and Glenmede, while other returning shareholders included Merus Capital, Accel Partners and Peter Thiel. Read more at Fortune.

    Birchbox, a New York-based monthly subscription service for MORE

    - Apr 21, 2014 7:41 PM ET
  • AdRoll raises $70 million as its expands 'retargeting' into mobile

    AdRoll has tripled its revenue run rate over the past 15 months, now at an IPO-able $150 million.

    FORTUNE -- Ad tech isn't sexy, but it still can generate a lot of venture capital dollars. Case in point is AdRoll, which this morning is announcing $70 million in new funding led by existing shareholder Foundation Capital.

    AdRoll is a San Francisco-based company founded in 2007 to focus on digital ad "retargeting," a MORE

    - Apr 21, 2014 7:26 AM ET
    Posted in: ,
  • Tucker Twitmyer leaves EnerTech Capital

    Energy-focused venture capitalist joins Franklin Square Capital.

    FORTUNE -- Tucker Twitmyer has left energy-focused venture capital firm EnerTech Capital Partners after a 10-year run, Fortune has learned. His next stop will be as a senior vice president with alternative investment management firm Franklin Square Capital Partners.

    Twitmyer was one of four partners listed on EnerTech's fourth fund, which closed last September with $120 million in capital commitments. He also was one of the few MORE

    - Apr 18, 2014 12:53 PM ET
  • VC investment hits 13-year high

    Venture capitalists invested $9.5 billion last quarter, the highest total since the dotcom doom's waning days.

    FORTUNE -- No, it isn't your imagination: Venture capitalists are investing money at a faster clip than in any time since the final days of the dotcom boom.

    VCs pumped $9.5 billion into 951 U.S.-based companies last quarter, which was the most money invested in any quarter since Q2 2001, according to MoneyTree survey data published MORE

    - Apr 18, 2014 12:28 PM ET
    Posted in:
  • Deals of the day: High-frequency trader delays IPO

    To get deals in your inbox each morning, sign up for our Term Sheet newsletter

    Venture Capital Deals

    Beckon, a San Mateo, Calif.-based provider of enterprise SaaS for tracking and analyzing marketing spend, has raised $8 million in Series A funding from August Capital and Canaan  Provista Diagnostics Inc., a Scottsdale, Ariz.-based maker of diagnostic and predictive tests for cancers affecting women, has raised $6 million in Series B funding. No investor information was disclosed. www.provistadx.comInstacart, a MORE

    - Apr 18, 2014 9:55 AM ET
  • Campaign Monitor's $250 million round was a long time coming

    Campaign Monitor raises $250 million from Insight Venture Partners, six years after the two sides first began discussions.

    FORTUNE -- Email marketing and design firm Campaign Monitor yesterday announced that it has raised $250 million in equity funding from Insight Venture Partners, for an undisclosed ownership stake. This deal has been a very long time coming.

    Insight first contacted Australia-based Campaign Monitor back in 2008, as the result of an internal program that cold-calls possible MORE

    - Apr 17, 2014 11:42 AM ET
Current Issue
  • Give the gift of Fortune
  • Get the Fortune app
  • Subscribe
Powered by VIP.