US startup valuations plummet

Venture capital firms and startups are feeling the pinch of the economic downturn, finding it hard to secure funding as investors tighten their belts.

A new survey of VCs in the San Francisco Bay area found that just 54% had drawn investments last quarter that place a higher value on the company than its prior worth (known as "up rounds"), with 33% experiencing the opposite.

The study, conducted by Law firm Fenwick and West, also found that down rounds increased each month throughout the quarter - by December, 45% of all financings were down rounds, and just 48% were up.

VCs have had their worst quarter since Q3 2004, Fenwick and West said. VC investment per company increased by an average of just 25%.

Web 2.0 and digital media startups had by far the most success securing up rounds. Factoring out these companies, VC investments per company would not have grown over the quarter.

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