VC Forecast: Hot?

Law firm Fenwick & West has dished out results from its first-quarter 2006 Silicon Valley Venture Capital Survey.

The San Francisco Bay Area VC benchmark analyzed the valuations and terms of venture financings for 101 technology and life science companies based in the area. And if the climate keeps getting better for venture capital, it might be time for still hotter predictions.

Take their barometric reading: Fenwick & West's Venture Capital Barometer -- the measurement of change in share price of Silicon Valley companies funded during the quarter compared with their previous financing round -- was up 64 percent. Does this mean it's going to start raining VC money soon?

Compare it with a San Jose Mercury News report on Fenwick's survey of December 2005, when it seemed the mercury, as in thermometer, wasn't quite so high, up 38 percent.

Also, the survey revealed:

"Up rounds significantly outpaced down rounds 74 percent to 15 percent," said Barry Kramer, partner in the firm and co-author of the survey. "That differential is also the largest since our survey began."

An "up round" is defined as one in which the price per share that a company sells its stock has increased since its prior financing round. A "down round" is defined as one in which the price per share has declined since a company's prior financing round.Fenwick is a technology specialist with expertise in venture capital, IPOs and other corporate finance, joint ventures and M&A, among other areas.

To its credit, Fenwick pointed to a note of caution.

"IPO activity continued to be weak with only 13 venture backed companies going public, and with Nasdaq down 7 percent in the quarter to date," said Fenwick & West partner Michael Patrick. "A note of caution is appropriate."

One word: Vonage.