The second half of 2024 saw improvements in capital raised and pre-money valuations, particularly at the top end of the market, suggesting potential positive momentum into 2025.
Down rounds decreased in prevalence for late-stage companies, and extension rounds returned to levels seen in 2019 and 2020, indicating a relative improvement in market health.
Despite the increase in up rounds and pari passu financings for late-stage companies, there was a notable increase in the prevalence of pay-to-play provisions in Series B and later rounds, continuing an upward trend since 2022, highlighting a strategic shift toward restructuring preference stacks and prompting investors to support later-stage companies in achieving stability and growth.
Startup cohorts from 2021 and 2022 were less likely to secure follow-on capital within two years compared to those from 2019 and 2020, highlighting ongoing challenges in deal velocity and graduation rates.
While there are encouraging signs of growth, extended fundraising timelines and lower stage-to-stage graduation rates suggest that stakeholders should remain vigilant to both opportunities and potential challenges in 2025.
Foreword
Since 2002, Fenwick has been producing a quarterly Venture Capital Survey, aiming to provide valuable insights to the global entrepreneurial and venture community on the terms used in venture financings in Silicon Valley. Twenty-three years later, we are thrilled to partner with Aumni on the Venture Beacon report. This report offers a data-driven perspective on the forces shaping venture capital globally today, and provides unique insights on trends that influence term sheet negotiations, financing structures, and long-term strategic planning. We are also excited to produce future detailed surveys of venture financings using Aumni’s deep data sourced directly from legal documents, with a focus on more in-depth analysis of investor rights and protections, financing terms, and market trends.
This issue highlights forward momentum in the venture capital market since 2023, along with some signs of caution from investors. From the perspective of Fenwick's startup and venture capital lawyers, who collectively represent over 1,500 VC-backed startups, including more than 100 unicorns, the increase in capital raised and pre-money valuations, particularly within the top quartile of the market, signals a robust and fertile environment for later-stage and high-growth companies. However, the data also reveals challenges in the market: fundraising timelines have continued to stretch, and stage-to-stage graduation rates have declined. This suggests that while some sectors are thriving, others are facing headwinds in maintaining growth.
As we move further into 2025, venture capital will likely continue to operate under mixed signals—with pockets of opportunity amid ongoing challenges. The findings in this report underscore the importance of a nuanced and strategic approach to fundraising and deal structuring. Key legal considerations for the year ahead include:
Stronger governance terms in financings as investors seek to mitigate risk in an uncertain market;
Developments in corporate law, including in the areas of liability, governance structures, state of incorporation, and information rights; and
An evolving secondary market, with more investors exploring liquidity options outside traditional exits.
The data suggests that in 2025 we are looking at a nuanced landscape where legal expertise plays a critical role in navigating both opportunities and challenges. Fenwick's startup and venture capital lawyers, with their deep industry knowledge and experience with startups, are committed to providing strategic guidance that aligns with evolving market dynamics. Our goal is to ensure that stakeholders are equipped to make informed decisions in this complex environment, leveraging our insights to navigate the intricacies of the venture capital landscape effectively.
Ian Goldstein Partner, and Co-lead of Startups & Venture Capital Practice Fenwick
Allison Cooper Partner, Startups and Venture Capital Fenwick
Mark Leahy Partner, Startup and Venture Capital Fenwick
About Fenwick and Its Startup & Venture Capital Practice
Fenwick is a leading law firm for startups and venture-backed companies, providing comprehensive legal counsel at every stage of growth—from formation and initial funding to IPOs and mergers. Purpose-built for technology and life sciences, we partner with some of the most innovative companies, offering strategic guidance on licensing, IP protection, executive compensation, M&A, and corporate governance. The firm is widely recognized for its industry-shaping work, consistently ranked as a top law firm for venture capital and emerging companies by PitchBook, Chambers, and U.S. News & World Report. Fenwick serves as trusted counsel to over 100 unicorns and over half of the U.S. tech companies valued above $15 billion, helping clients navigate fundraising, board governance, and exit strategies.
In addition to its market-leading Startup & Venture Capital practice, Fenwick provides sophisticated regulatory, litigation, and intellectual property counsel, supporting companies at every stage of growth as they scale, innovate, and address complex legal challenges.
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Overview
On first glance, the U.S. venture capital market appears to have carried the initial positive momentum in the first half of 2024 through to year-end, with considerable improvements across a number of dimensions year-over-year. However, tempered deal velocity and graduation rates provide a more nuanced picture of the market's health.
Median pre-money valuations increased across the board between 2H23 and 2H24, growing between 20% and 31% in early-stage deals, and by as much as 34% for Series D and later rounds. The positive momentum in valuations for venture capital-backed companies largely correlated with the surge in valuations in public markets in the second half of 2024.
Similarly, the median amount of new money injected into companies increased across the board in the second half of 2024. The median amount raised in early stages increased between 11% and 23% year-over-year, but more substantially in Series C and later rounds by as much as 80% and 100%. Series C rounds also saw notable changes in median dilution and board size, with 52% and 17% increases year-over-year, respectively.
The shifting levels of capital raised and pre-money valuations, particularly in late-stage rounds, coincided with fluctuations in the percentage of a round taken by the lead investor. The median percentage of a round taken by the lead investor in later-stage rounds experienced sharp quarter-to-quarter fluctuations in 2024, while persistently increasing through year-end for early-stage deals. In Q4 2024, early-stage investors acquired 60% of the round, the highest value in the data in the last six years.
And yet, even though the general trend appears to be positive, a deeper look at the interquartile range of post-money valuations reveals that the market shift is still largely occurring at the top quartile of the market. Across financing stages, there is a clear divergent trend between top quartile valuations, which saw significant momentum in the second half of the year, and the median and bottom quartiles, which modestly improved in early-stage deals but stayed flat for Series C and even decreased in Series D and later rounds.
Post-Money Valuation Quartiles and Distribution
The post-money valuation distribution charts presented are on a log-normal scale, such that the x-axis increases from $10M to $10B, making it easier to think about these distributions as normal Gaussian bell curves. The dashed vertical lines indicate the median post-money valuation for each vintage year.
Even though post-money valuation trends are positive, the top quartile of the market shows the largest shifts.
Extension Rounds and Down Rounds
The decrease in down rounds for early-stage companies in the first half of 2024 reversed in the second half of the year, increasing to 20.3% of all early-stage deals. Flat rounds declined to 7.6% from 10.9% in the first half of 2024.
Meanwhile, down rounds meaningfully declined for late-stage companies in the second half of 2024, decreasing to 27.6% from 34.4% in the first half of the year.
The decline in down rounds for late-stage companies coincides with the overall reduction in extension rounds occurring in the market in the latter half of 2024. Extension rounds appear to have peaked in the first quarter of 2023, at 30% of all transactions, and have since declined to 22% in Q4 2024. Extension rounds in 2024 returned to the levels previously seen in 2019 and 2020.
The decrease in the prevalence of down rounds at later stages and the general decrease in extension rounds speak to the relative improvement in the overall health of the venture capital market in 2024.
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Contradicting all of the positive momentum in the venture capital market in 2024, the amount of time it took companies to raise capital increased in the second half of the year. The contradiction suggests that while the market fundamentals are otherwise improving, the underlying velocity of deals remains subdued.
As the time between rounds increased in the past few years, the graduation rate of startups raising the subsequent round within two years has decreased substantially. The 2022-to-2024 cohort had the lowest rate of successfully raising the next round within two years among the most recent four cohorts.
Convertible Notes and SAFEs
The time between convertible instrument issuance and Series Seed conversion reached new highs in 2024, exceeding the six-year historical average by approximately four to five months. This extended timeline may highlight early-stage companies feeling they need to preserve and extend their runway amid market uncertainty.
While 11% of SAFEs in 2024 were issued without valuation caps (up from 7% in 2022), the more notable trend is among capped instruments. The proportion of SAFEs with only a valuation cap (no discount) increased from 60% in 2019 to 76% in 2024. This simplification of terms might indicate a maturing market where caps have become the standard protection mechanism, though it actually provides less overall protection for investors compared to instruments with both caps and discounts.
As valuations for priced equity rounds increased in the second half of the year, valuation caps in Convertible Notes and SAFEs showed corresponding increases. For most investment sizes, caps rose between 6% and 30%. However, while caps increased, the median investment amounts for deals over $250,000 either stayed flat or decreased between 5% and 27%, creating an interesting dynamic where valuation expectations and investment sizes are moving in opposite directions.
SAFEs became even more dominant before priced equity rounds in the latter half of 2024, while becoming less prevalent for transactions after a known priced round. Convertible Notes before priced equity rounds decreased in prevalence to an 8-quarter low of 14.1% in Q4 2024, while convertible notes after a known priced equity round increased to 75.6% in the fourth quarter of 2024, from 65.1% in Q1 2023.
Unsurprisingly, average Convertible Note interest rates started to decrease as the effective federal funds rate started to come down in 2024. The average Convertible Note interest rate dropped below 8% in the second half of the year, ending at 7.8% in Q4 2024. Meanwhile, discount rates greater than 20% ended the year marginally higher than in 2023, at 25.8%. Discounts under 20% declined further to 10.1% of all transactions with a discount.
Liquidation Preferences and Legal Terms
Liquidation preference seniority structures in 2024 largely tracked the same path as the year prior, with early-stage rounds remaining stable throughout the year. Late-stage rounds showed a consistent early- to mid-year peak in pari passu structures, possibly reflecting heightened competition among investors during peak deployment seasons.
Pay-to-Play provisions, where existing investors must participate in future financing rounds to maintain their preferential rights, increased considerably in Series B+ deals each year since 2021.
Other common deal terms in equity financings saw little change in 2024. The prevalence of Drag Along Rights, Right of First Refusal (ROFR) and Co-Sale Provisions, and Employee Vesting Covenants remained a staple of transactions throughout 2024.
Final Remarks
Data from the second half of 2024 points to a market in transition, with both encouraging signals and cautionary indicators.
Overall, the venture capital market in 2024 presents a study in contrasts: while priced equity round valuations and round sizes have improved, particularly at the top end of the market, structural indicators like extended fundraising timelines and lower stage-to-stage graduation rates reveal persistent challenges. For Pre-Seed, the lengthening time between convertible issuance and Series Seed conversion, coupled with the divergence between rising valuation caps and declining investment amounts, points to a market still working to reconcile higher valuation expectations with more cautious capital deployment.
Sebastian Quintero Head of Research and Applied Machine Learning Aumni, a J.P. Morgan Company
Thank you to all colleagues at Aumni and partners at Fenwick who contributed to this edition of the Venture Beacon.
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Drawing on hundreds of thousands of transactions, you’ll explore rich and granular insights across market valuation trends, markups and down rounds, ownership, and governance options.
Aumni obtains primary data from third parties, including law firms, angel investors, VC firms, CVC firms, institutional investors, and others. All data contained in this report pertains to companies with jurisdiction in the United States and is aggregated from an anonymized database of source data. All data is de-identified prior to analysis by our research team.
Definitions
Amount Raised – The total sum of new money raised in an equity financing round.
Convertible After a Known Priced Round – Issuance of a convertible note or SAFE after a known equity financing event.
Convertible Before a Known Priced Round – Issuance of a convertible note or SAFE before a known equity financing event.
Convertible Conversion – The conversion of a Convertible Security into equity.
Convertible Note – A short–term debt instrument that converts into equity.
Convertible Note Interest Rate – The interest rate at which a convertible note’s principal will accrue interest over time.
Convertible Note/SAFE Purchase Amount – The dollar value of an investment in a Convertible Note or SAFE.
Dilution – The percentage decrease in ownership of a company due to the issuance of new shares.
Discount – The discount a Convertible Note or SAFE holder receives on the share price relative to subsequent investors during the conversion of the security in an equity financing round.
Down Round - A financing event in which a company obtains a new pre-money valuation equal to or less than 95% of the post-money valuation of the previous financing round.
Down Round Markdown – The difference between a company’s new pre-money valuation and the post-money valuation of the immediately preceding equity financing round in the case of a down round.
Drag Along Rights – A legal provision that allows certain voting blocks of a company to force other shareholders to agree to a specific action, such as the sale of the company.
Early Stage – Early stage comprises Series Seed, Series A, and Series B transactions.
Effective Federal Funds Rate – The effective interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with one another overnight.
Employee Vesting Covenant - A legal provision that indicates whether or not a company covenant subjects all employee equity grants to vesting.
Extension Round – When a company raises additional capital using similar terms as the most recent primary round.
Flat Round - A financing event in which a company obtains a new pre-money valuation between 95% and 105% (exclusive) of the post-money valuation of the previous financing round.
Follow-On Investment – A subsequent investment by an investor who has previously participated in an equity financing round in the same company.
Fully Diluted Ownership – An investor's ownership as a percentage of the total number of shares outstanding for a company, assuming the exercise of all warrants and the exercise of all options, including those reserved but unissued.
Late Stage – Late Stage comprises Series C and later transactions.
Lead Investor – The legal entity identified as the lead investor in an equity financing or the one that purchased the largest number of shares.
Non-Pari Passu – Any liquidation preference seniority structure that deviates from the pari passu standard.
Pari Passu – A liquidation preference seniority structure where all preferred shareholders across all financing stages have equal status.
Pay to Play – A provision that penalizes investors for failing to participate in future rounds by forcing a conversion of preferred shares to common shares, as well as losing certain other rights.
Post-Money Valuation Markup – The percentage change in post-money valuation from one stage of financing to the next, e.g., the change in valuation from Seed to Series A.
Post-Money Valuation – The enterprise value of a portfolio company following the closing of an Equity Financing, calculated as the fully diluted share count of a company multiplied by the highest new money original issue price of any equity class issued in an equity financing.
Pre-Money Valuation – The determined value of a company, usually via a 409A valuation, prior to the closing of an equity financing round.
Priced Equity Round – A financing event where a company raises capital from institutional investors at a set price per share based on the fair market value determined through an independent 409a valuation.
Primary Round – The first priced equity round of a specific class in the traditional venture capital sequence (Series Seed, Series A, Series B, etc.).
Investment Amount Range – Categories of Convertible notes and SAFEs grouped according to the amount of capital invested in a given company by a distinct investor.
Qualified Financing Event – A financing event that meets pre-determined criteria and triggers the conversion of convertible securities into equity ownership of the company.
Right of First Refusal (ROFR) and Co-Sales Provisions
Secondary Common vs. Preferred Relative Price Per Share – The price paid for a share of common stock relative to a share of preferred stock for a given company.
Secondary Premium, Par, Discount – Categories for secondary transactions that indicate whether the price per share paid in the transaction was at a value above (premium), the same as (par), or below (discount) the share price associated with the most recent priced equity round.
Secondary Tranche – An aggregation of multiple distinct transactions, where a single buyer purchases shares in a company from one or more parties, often a mix of founders, employees, and other investors. A secondary tranche represents a high-level view of a single purchaser’s intent to own shares in a given company.
Series D+ – All priced equity rounds named Series D or later are grouped into Series D+.
Simple Agreement for Future Equity (SAFE) – A convertible security that allows investors to buy shares in a future-priced equity round.
Up Round - A financing event in which a company obtains a new pre-money valuation equal to or greater than 105% of the post-money valuation of the previous financing round.
Valuation Cap – A price ceiling at which a SAFE or Convertible Note will convert to stock ownership.
Methods and Calculations
Currency Conversions – Transactions in international currencies are converted based on the foreign exchange rate on the final closing date of the equity financing.
Distribution of Post-Money Valuations – The distributions are derived by taking the natural logarithm of post-money valuations then estimating the probability density function by vintage year using Kernel Density Estimation.
Indexed Values to Base Period – The relative change in a value, where the initial value in a base period is set to 100, and all subsequent changes reference this initial value.
Median Rolling 200-Deal – A median is calculated over a rolling window for every 200 deals. This calculation is performed on both capital raised and post-money valuation data. The final output is a weekly average.
Months Between Convertible Issue and Conversion at Series Seed – The number of months between the date a Convertible Note or SAFE is issued and the date the instrument converts into equity at a Series Seed priced equity round.
Public versus Private Performance – Values represent the three-month rolling average of the monthly median Series A post-money valuation and the average monthly closing price of the S&P 500 and the Dow Jones Industrial Average. All values are standardized using z-score standardization, subtracting the mean and dividing by the standard deviation.
Series Stages – Series A through D+ stage names are based on the legal name of the round and are inclusive of shadow rounds, e.g., Series A is inclusive of Series A-1.
Stage-to-Stage Two Year Graduation Rate Cohorts – The proportion of companies that raise additional financing of the next class in the traditional venture capital sequence (Series Seed, Series A, Series B, etc.) within two years of a primary priced equity round.
Time between Rounds – The length of time, measured in months, between two sequential equity financing events for a given company. The final output is a median or a mean across all companies per quarter.
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