SOURCE: Cooley Godward LLP

September 21, 2006 11:00 ET

Cooley Godward Report Shows Venture Capital Financing Held Steady in First Half of 2006

PALO ALTO, CA -- (MARKET WIRE) -- September 21, 2006 -- Cooley Godward LLP today released its most recent quarterly report of venture capital financing, which showed that the investment climate for privately-held startups held steady in the first half of 2006. According to the report, startups continued to attract strong interest from VCs, and existing companies continued to build value for investors, even though company valuations tapered off, and in later stage deals even declined.

One of the highlights of this quarter's report is its in-depth look at company valuation trends over the last two years. "We found that the old 'Rule of Three' is a thing of the past," said Jim Fulton, a partner in Cooley Godward's Palo Alto office, and head of the firm's Emerging Companies practice. "It used to be that when entrepreneurs raised money for the first time, the VCs got about one-third of the company, the founders held on to a third, and another third was set aside for employee stock options. Today, investors get about 40%, founders get about 40%, and only 20% is set aside for employees."

The complete version of Cooley Godward's comprehensive and detailed report on venture capital investing, "Private Company Financings Report," is available at www.cooley.com. Among the report's other highlights:

-- Startups continued to attract strong interest from VCs. Venture capitalists showed a strong interest in investing in early-stage startups during the first half of the year. This was particularly true in the second quarter when early-stage financings (Series A and B) accounted for 73% of all deals. That number was a significant jump from 66% in the first quarter of 2006, returning the early-stage investment climate to the robust rate that typified the first three quarters of 2005.

-- Existing companies continued to build value for investors. The percentage of up-round financings (transactions in which the valuation of a company increased relative to the prior round of financing) totaled 85% of all deals in the second quarter of 2006, the same proportion as in the first quarter of the year. Those rates are a significant jump from 2005, when up rounds accounted for just two-thirds of transactions, and a dramatic increase from several years ago when down rounds accounted for more than half of all deals.

-- Company valuations tapered off, and in later stage deals even declined. While up-round financings continued strong, company valuations in the second quarter dropped from the peaks they hit in the first quarter of the year. Valuations declined only slightly for early-stage financings, but dropped dramatically in later-stage financings (Series C and D).

Cooley Godward's "Private Company Financings Report" is published quarterly. It is based on private company transactions in which Cooley Godward served as counsel to either the issuing company or the investors. Cooley Godward participated in 73 transactions in each of the first and second quarters of 2006, resulting in aggregate proceeds to private companies of about $1.788 billion. Cooley Godward maintains offices in all of the major venture capital markets in the United States, including Palo Alto, Calif., San Francisco, San Diego, Broomfield, Colo., Reston, Va. and Washington, D.C.

In 1959, Cooley Godward formed the first institutional venture capital limited partnership in the western United States. Since then the firm has been at the vanguard of private company financings, both as a representative of hundreds of venture capital and private equity partnerships and as counsel to companies and enterpreneurs raising money from the venture capital community. Industry sectors include all areas common to venture capital financings, including communications, computer hardware and networking, consumer electronics, general retail, Internet, life sciences, semiconductors and software.

About Cooley Godward

Cooley Godward is a prominent national law firm and a recognized leader in representing technology companies and litigating complex, high-profile cases. The firm represents public and private companies around the world, with a longstanding leadership position in the private equity, technology and life sciences sectors. Its clients include both high-growth and mature companies across all major industries, as well as the venture capital firms and financial institutions that support them. Cooley's focus is to provide the highest quality legal services directed at enabling our clients to achieve their strategic business objectives. For additional information, please visit www.cooley.com.

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