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Tech company valuations hold steady

Valuations for venture-backed technology companies hold steady in the second quarter after three straight quarters of declines, a VentureOne report says.

Dawn Kawamoto Former Staff writer, CNET News
Dawn Kawamoto covered enterprise security and financial news relating to technology for CNET News.
Dawn Kawamoto
2 min read
Valuations for venture-backed technology companies held steady in the second quarter after three straight quarters of declines, according to an industry report released Wednesday.

Information technology companies maintained their median valuation of $20 million in the second quarter, according to a VentureOne report. The figure is based on valuations companies receive prior to their next funding round.

The median valuations for venture-backed companies overall, however, fell to $17.7 million in the second quarter, down 7 percent from $19 million in the previous quarter.

"Valuations for venture-backed companies have fallen 26 percent since their peak, while IT is off over 50 percent. Hopefully, the tech sector has experienced the majority of its correction and we're close to a bottoming out," said John Gabbert, VentureOne research director.

Such news bodes well for the tech industry, which has suffered the brunt of the markets' downturn and pullback on initial public offerings. Valuations for private companies are closely tied to the markets' performance, as well as to what is paid to purchase similar companies and the valuations given to privately held competitors.

Within the tech sector, communications and networking, along with electronics and computer hardware companies, managed to pull off two back-to-back quarters of increased valuations. Both sectors also received a higher median valuation than venture-backed companies overall and the broader information technology category.

The median valuation for communications and networking companies reached $30 million in the second quarter, up 20 percent from the previous quarter. And valuations for the electronics and computer hardware sector grew to $45 million in the second quarter, up 22 percent from the first quarter.

"It's refreshing to see communications and networking come off the decrease it's had for the last year and half, when it peaked at $63 million during the first quarter 2000," Gabbert said.

Semiconductor valuations, however, encountered the steepest sequential quarterly drop in the tech sector, falling 54 percent to $15 million in the second quarter. The sector has also received two sequential quarters of declining valuations.

"The general sentiment for semiconductor companies is they aren't in favor as they have been in the past. It's not surprising it's down, but it is surprising it's down so significantly," Gabbert said.

Software companies also had two back-two-back quarters of declining valuations, also falling 11 percent to a median of $15 million in the quarter, down slightly from $16.9 million in the first quarter.

Information services fell 34 percent to a median valuation of $11 million in the quarter, compared with the previous three-month period. Perhaps more disturbing is the sector has now undergone three consecutive quarters of valuation declines.

"In the past, it wasn't typical to see three quarters of decline," Gabbert said.