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Venture capitalists ease terms for Silicon Valley start-ups

Has Silicon Valley finally got its groove back? Venture capital investment in start-up companies rose to $35 million in the third quarter, up 36% on the previous three months. M&A activity is also rising. And talk of a $20 billion initial public offering by Google is generating the kind of buzz last experienced in 1999.

But among long-term Silicon Valley insiders, the most telling sign of improvement may be the steady return to more traditional terms in venture capital financings, the life blood of the thousands of emerging growth companies that litter the landscape from Berkeley to San Jose.

Hard times raising cash It has been difficult for Silicon Valley entrepreneurs to raise capital in the wake of the high-tech meltdown. Venture capital firms and other strategic investors have not only become more selective with their money, they have also been demanding new and increasingly aggressive financing terms.

Multiple or super liquidation preferences, for example, have been appearing in over a half of all venture financings. These preferences give late-stage investors the right to receive as much as four or five times the amount invested in a company if there is a sale or merger, before any other shareholder gets anything.

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