PEHUB reports some good and bad news from Angelsoft, a software company that tracks valuation trends:

Valuations for funded startups in Q4 of 2008 fell by 24% when compared to Q3 of the same year. The company’s software, which is used by more than 450 angel groups and venture funds worldwide, tracked a total of 128 deals in the quarter with a median pre-money valuation of $3 million. In the third quarter, it tracked 123 deals with a median value of $3.9 million.

However, there was some encouraging news embedded in the numbers, according to Ryan Janssen, Angelsoft’s COO. He called it “damn near a miracle” that angels and vcs actually did more deals on its platform last quarter than in the prior one.

Admittedly, seeing more fundraising in the face of a once-in-a-century credit crunch is impressive, but this speaks more to the fact that funding processes take 6 months to close… so if two parties had spent a few months trying to close a deal and the credit crunch hit, it’s highly conceivable that they would both want the deal to go through, after all, the VC has the money to invest and they too expect their own limited partners to have a hard time meeting cash calls.

Of course, there is another reason for this: When I work with investors and entrepreneurs/executives and try to help them sell their company, everyone is usually unrealistic.  Today, it’s the opposite.  I figure the same applies to fundraising, too.  If you need money and someone wants to invest, you jump on it.

As a side note, I’ve personally seen an uptick in companies asking me to help them sell their companies.  One reason is the credit crunch and less opportunities to raise money (and stay independent)… another is (probably) that the established M&A boutique shops have less confidence in being able to close deals or the retainers they ask for are out of whack as valuations tumble.

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