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The latest statistics on venture capital activity are out, but Silicon Valley technology lawyers don’t really need another spreadsheet to tell them business is slow. Instead, they’re looking more closely at what kinds of deals entrepreneurs are getting in the rare instances when VCs buy stock in new companies. At the very least, they hope to glean new information that can help their clients maneuver. They also are looking for any hopeful sign that VCs are lightening up on their demands of entrepreneurs, a signal the Silicon Valley economy is improving. Fenwick & West partner Barry Kramer is the latest to compile a study of deal terms. He polled 74 San Francisco Bay Area companies that got funding in the second quarter and determined that VCs are letting up, slightly, on demands such as guarantees for their investment. The study group included companies that were not Kramer’s clients. “I wanted to be able to tell clients what’s going on,” Kramer said. “It was becoming more and more complex and time-consuming negotiating these deals because the situation [companies] were finding themselves in was unprecedented.” Because the deal environment has shifted so dramatically in the past 18 months, tech lawyers have had to scramble to keep up with one another in devising new deal structures. “People were coming up with new ways to structure deals to address problems,” Kramer said. “I wanted to be able to tell clients what’s going on.” Kramer said his study, compiled with the help of Fenwick partner Michael Patrick, helps him see trends in how VCs invest their cash. It’s still a hostile market for entrepreneurs, Kramer said, but the worst of it may be over for existing portfolio companies, who are seeing slightly more favorable terms of late. Venture Law Group has undertaken something similar by compiling data on its own clients. VLG partner Joshua Green said the firm’s internal reports show entrepreneurs are still having a tough time securing VC investments. With corporate work painfully slow in the Valley, it should come as no surprise to technology lawyers that the latest tally from the Ernst & Young/VentureOne Venture Capital Survey shows that VCs have pulled their financing back a bit — not that they were flinging cash around in the previous eight quarters. In the second quarter, venture capitalists pumped $2.32 billion into fledgling companies in California, according to the VentureOne report released July 26. That’s 10 percent less capital than the $2.59 billion VCs invested in the state in the prior three-month period. Nationwide, VCs put to work $5.1 billion in 538 deals in the second quarter, a 7 percent decline from the prior quarter. Ernst & Young’s Chris Bruner predicts investment activity will hold firm from quarter to quarter going forward, suggesting the VC industry has bottomed out. “They’re looking for real companies,” Bruner said. “I don’t think we’ll see the big shifts down, and clearly no shifts up” in investment activity for some time. Among Valley deals, Steven Franklin, a partner at Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, said VCs are still making tough demands on existing tech companies that have raised venture capital in the past. However, that’s an uncertain indicator for what’s to come, because generally investors are more optimistic about new companies, Franklin said. “There is money available for good companies with real technology and real barriers to entry,” Franklin said, “but the bar is much higher than it was two years ago.”

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