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Estimated market value of US VC companies up 20% in Q4 2010, says Dow Jones

The estimated market value of venture capital-financed companies in the US rose 19% in 2010’s fourth quarter and 23% for 2010, according to the Dow Jones US Venture Capital Index. The index’s performance topped the Dow Jones US Total Stock Market Index’s gains of 12% and 17%, respectively, over the same time periods.

The rise in the Dow Jones US Venture Capital Index for 2010 (based on back-testing) marks the second consecutive year in which valuations of, and the amounts invested in, venture capital-financed companies posted gains over to previous years.

Venture capitalists invested USD28.5 billion in 2,874 deals in 2010, an increase of 17% in dollars and 8% in deals compared with 2009, according to Dow Jones VentureSource. For 2010’s fourth quarter, investments totalled USD9.0 billion in 785 deals, a 20% increase in dollars and no change in deals from the fourth quarter of 2009 when USD7.2 billion went into 785 deals, according to Dow Jones VentureSource.

“Anyone who thinks the rise in valuations of venture capital-funded companies in 2010’s fourth quarter was dominated by a handful of companies would be mistaken,” says Susan Woodward, an economist and the founder of Sand Hill Econometrics. “There were 785 private rounds of funding in the fourth quarter with an average amount of USD11.5 million raised, well above the third quarter’s USD9.0 million. These latest figures validate the notion that valuations of venture capital- funded companies for 2010’s fourth quarter were up significantly.”

The Dow Jones US Venture Capital Index was launched on September 30, 2010 by Dow Jones Indexes, a leading global provider of indexes such as the Dow Jones Industrial Average.

The methodology for the Dow Jones US Venture Capital Index was developed by Sand Hill Econometrics together with Dow Jones Indexes. The values are based on a combination of values reported by the individual venture capital-funded companies to Dow Jones VentureSource and value estimates.

Sand Hill previously developed econometric methods for estimating company values when a recent market value is not readily available. Dow Jones VentureSource database is owned by Dow Jones & Company, Inc.

The Dow Jones US Venture Capital Index is based on US domiciled companies in the Dow Jones VentureSource database, the world’s most comprehensive venture capital database. VentureSource tracks more than 19,000 investment firms and approximately 27,000 venture-backed companies — in all industries and stages of development.

The index tracks the value of companies headquartered in the US that have received equity funding from institutional venture capital funds. Values are reported by the companies themselves. Excluded from the index are companies that receive funding solely from “angels,” affluent private investors, or leveraged buyout funds. Component companies enter the index when they get a first round of venture funding. They exit the index when they are acquired, merge with another company, make an IPO or go out of business. The index is market-value weighted, continuously invested, and updated quarterly.

As of December 31, 2010, there were about 8,000 active companies in the Dow Jones US Venture Capital Index. The Index, first published on March 31, 2010, has an annualised return of 16.4% from the end of 1991 through the present, before expenses and fees. Back-tested monthly index history is available back to December 31, 1991.

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