Source: Fenwick & West

We've certainly seen our fair share of "down rounds" in recent months, venture capital deals in which the valuation comes in at a lower price point than previous rounds. That recalibration is certainly part of larger economic forces as VCs and entrepreneurs re-think the values they placed on startup companies from a year or two ago.

A survey released today by Fenwick & West points out just how prevalent "down rounds" are becoming -- at least in Silicon Valley where the law firm analyzed recent financings for 89 companies.

According to the report, 46 percent of the deals were down rounds while 22 percent showed "flat" valuations. More interestingly, Fenwick notes that the past two quarters are the only two quarters where down rounds have exceeded up rounds since the fourth quarter of 2003.

And the tide has shifted rapidly. During the second quarter of 2008, just 13 percent of deals were down rounds while 68 percent were up rounds.

Furthermore, Fenwick's Venture Capital Barometer shows an average price decrease of six percent for those companies receiving venture financing during the quarter. That followed a decline in the first quarter -- the only two negative quarters since the firm started tracking price movements in 2004.

What does it all mean?

The New York Times' Brad Stone offers his insights in a story headlined "Falling Valuations: Poison for the VC Industry."

But there are other things at work here too, highlighted by my story yesterday on DevHub which gave up on venture financing earlier this year in order to focus on reaching profitability.

Those stories may become more common as startups try to make their previous venture round last as long as possible or learn to exist on their own cash flows, rather than butt their heads up against tough terms in a new venture deal. (Seattle-based iLike is another example of a company that's living off its venture reserves and own cash flows at the moment).

Prominent Seattle venture capitalists -- speaking in good times -- have told me that you should only take venture capital as a last resort. In tough times like these, that's probably even more important.

The Fenwick report also discusses liquidation preferences, corporate restructurings and other topics.