So much for the down market. Seed valuations reached an all-time high in 2023, according to a new report from Pitchbook.
Median pre-money valuations hit $12 million last year. This was higher even than the peak of the 2021 bubble, when they sat around $8 million.
For seed valuations, there has been no downturn at all. Prices have kept rising every year since 2020 with no end in sight.
Why Is Seed Hotter Than Ever?
The late stage market is a mess and venture funding overall has fallen by well over 50%. So why is seed stage doing so well?
Many multistage funds got burned badly with late stage investments. But they’re still sitting on giant piles of cash to deploy.
They also have younger staff eager to write some checks. So they give them a little money and say “Go play at seed.”
Pre-seed and seed are also the most insulated from public markets. Although the Magnificent 7 are crushing it, tech as a whole isn’t.
The NASDAQ remains below the market peak. And many tech stocks are still down 75% or more.
Many managers want to stay as far away from that carnage as they possibly can.
What I’m Seeing Right Now
Here’s what I’m seeing today in the market…
Deal volume is up from last year, a welcome change.
Through much of 2022, so few deals were actually closing that it was hard to invest in as many companies as I’d like to. I did just 7 deals last year, compared to a typical pace of 10-12.
However, the quality of those deals was very high.
Companies are doing more with less. The down market makes founders wary of spending money, and AI means they can hire fewer people while actually getting more done.
When a company does make it to seed these days, it often has a ton of revenue.
In 2021, I saw seed deals get done with little or no revenue all the time. These days, I’m investing in seed and even pre-seed deals that routinely have $1-2 million in revenue.
Those companies would’ve easily gotten a Series A in 2021, maybe even a B. Today, they close a healthy seed round, but no more.
For me, this is an incredible opportunity!
Who wouldn’t want to invest with more traction at the same price? A company with $2 million ARR is a much less risky bet than one with $60,000.
Wrap-Up
Markets are ripping now and the IPO window may come unstuck by mid-year. If that happens, I expect to see more money pour into venture, pushing those seed valuations even higher.
I want to keep loading up on these amazing, de-risked early stage startups as long as I can. Make hay while the sun shines!
What are you seeing at the early stage right now? Leave a comment and let us know!
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