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Fish & Richardson surveys San Diego's VC financings

To meet the needs of local companies and the venture capital community, the law firm of Fish & Richardson P.C. has begun publishing a Multimarket Venture Capital Survey. The survey is the only source of information about the terms of publicly-reported venture capital financings in five key investment regions: Southern California/San Diego, Mid-Atlantic, New York Metro, New England and the Southwest.

"We view the survey as a resource for venture capitalists and companies entering into deals," said Eddie Wang Rodriguez of Fish & Richardson. "The information we collect and analyze gives insight into what to expect and what to negotiate for. It also provides valuable information about what is standard both within and outside of San Diego."

Rodriguez heads up Fish & Richardson's San Diego corporate law group and has represented investors and private companies in numerous financings valued in excess of $200 million.

Compiled and released quarterly exclusively by Fish & Richardson the third installment of the survey will be completed within the next two weeks. The previous two surveys examined an average of 160 financing deals and tabulated the findings by region and comparatively among all the regions included in the survey.

The most recent survey reviewed financings in the second quarter of 2004 and concluded that the venture market continues on a gradual upward slope. The level of deals in the early stages is showing improvement, but there continues to be a disparity between "good deals" and willing venture funds.

The trend of increasing early-stage investing could have the effect of increasing later stage activity over the intermediate term. Later-stage valuations have increased more significantly than the seed and early-stage market, which could reflect a supply imbalance or optimism regarding the availability of exits. Interestingly, terms for some later-stage deals deteriorated during the second quarter.

Deal terms continued to loosen slightly, although with significant variation among the regions.

For example, the 2X Liquidation Preference and Full Ratchet Antidilution Price Protection continued to decline in most markets but became slightly more common in the Mid-Atlantic and Southwest.

"The interesting question for the venture capital market is where we go from here?" said Edith Bauer, one of the Fish & Richardson corporate law attorneys who analyzed the data. "The market has demonstrated that it can recover from a major downturn. The issue is how much upside there will be and how large the market will be over the next five years."

While no one is calling for a return to the exuberance of the late 1990s, there is a significant gap in activity between where we were then and where we are now. The effects of harsher securities regulation, the post-Google stock market and NASDAQ generally, and the fund-raising efforts of the non-marquee VC funds during the rest of this year and into 2005 should be watched closely.

"Absent a major change in aggressively committed capital, or a change in exits, we anticipate that the market has settled into a sustainable equilibrium at current levels," Rodriguez said.

To receive a copy of the survey, visit www.fr.com/news/subscribe_survey.cfm

Submitted by Fish & Richardson P.C.

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