It may be tough times in startupland, but one area is bucking the trend: seed stage. Median pre-money valuations are up 33% year over year, according to a report released yesterday by Pitchbook:
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Seed-stage investment has possibly held up better than any other stage to this point in the economic slowdown. Seed deal counts have remained elevated, and median deal sizes and valuations continue to grow. The median pre-money valuation for seed in 2022 has reached $12.0 million, 33.3% above 2021’s full-year figure of $9.0 million.
Seed is my playground. And seed investors are wise to continue doing deals.
Most companies at that stage won’t exit for ten years. By then, the economy and markets are likely to be completely different.
Late stage deals have also been surprisingly resilient. Although the median deal size has dropped slightly, valuations are actually up 10% over 2021.
This is harder to make sense of, because late stage startups are close to an IPO. That makes them more comparable to public tech stocks than a seed stage company.
And holy mole, have public tech stocks gotten hammered! The NASDAQ is down 21% from its peak last year, and many major companies like Shopify are down over 70%.
Yet somehow, it’s early institutional rounds that are struggling to get done.
Early-stage valuations have started to mirror broader economic uncertainty and show signs of decline. While select startups continue to find success fundraising amid headwinds, quarter-over-quarter median pre-money valuations saw their first decline in ten quarters. The Q2 median pre-money valuation for early-stage VC was $52.0 million, exhibiting a 16.1% decrease from the Q1 2022 median pre-money valuation of $62.0 million.
This is around Series A and Series B. The slowdown at this phase mirrors what I’ve heard from VC’s.
Seed will likely continue to outperform other stages, given how much time the companies have to grow before they hit the public markets. But I still expect a drop in valuations in the rest of the year.
Pitchbook’s report for the first half covers deals that closed in the first half, not deals that began then. Venture deals often take months to close.
So, many of the deals we’re seeing were agreed to in Q1 2022 or Q4 2021. I’ve seen the market cool substantially since then.
Founders should extend runway so they can get through this tough market. And investors should continue to fund great companies at reasonable valuations.
That’s what I’ll be doing!
What do you think of today’s funding market? Leave a comment at the bottom and let me know!
More on tech:
$500 Billion in Venture Capital is Sitting on the Sidelines
Hedge Fund Giant Tiger Loses Over $18 Billion — Long Fund Down 64%
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