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US Venture Capital Valuation Report: Q3 2023


Q3 2023 US VC Valuation Report: Insights

Overview: US Venture Capital Valuation Report


The U.S. venture capital market in Q3 2023 exhibits varied dynamics across different stages of investment, from pre-seed to venture-growth stages. The market has been influenced by several factors, including economic conditions, investor behavior, and startup performance.


Pre-Seed and Seed Stage

  • Stability Amidst Economic Uncertainty: The pre-seed and seed markets have shown resilience against broader market challenges. A combination of methodical dealmaking, qualitative-focused due diligence, and an abundance of smaller VC funds has sustained deal metrics.

  • Record Deal Sizes: Q3 witnessed a record median seed deal size of $3.3 million. However, significant growth in deal metrics is not anticipated in the near term, nor is a correction expected soon.

Early-Stage VC Valuations

  • Trends and Metrics: The early-stage VC sector is marked by a narrowing gap between seed and early-stage deal metrics, leading to a decade-low Relative Value vs. Cost (RVVC) figure of 35.3%.

  • Investment Challenges: There's an increased focus on strong financials and paths to profitability. This trend has led to startups opting for bridge rounds over new series rounds to meet investors' financial-performance expectations.

  • Deal Sizes and Valuations: The Q3 2023 median deal size was $5.0 million, with a median pre-money valuation of $40.0 million, which is lower than in recent years. Valuation metrics have remained relatively stable.

Late-Stage VC Valuations

  • Market Conditions: Late-stage startups face a challenging market environment. The median time between rounds reached 1.72 years, the highest of any stage, indicating a slowdown in fundraising activity.

  • Decrease in Deal Size and Valuation: The median late-stage deal size is on track for a six-year low. The median late-stage pre-money valuation decreased by 22.4% from the 2021 high, although it showed a quarterly increase in Q3 to $63.0 million.

  • Step-Up Metrics: The median late-stage valuation step-up fell to a near-decade low, indicating reduced growth in valuations from one funding round to the next.

Venture-Growth Valuations

  • Significant Decline in Valuations: Venture-growth-stage startups are experiencing the most considerable decline in valuations, with a 65.2% drop from the 2021 record high. The median pre-money valuation for 2023 YTD is $129.6 million.

  • Challenges and Strategic Shifts: Many venture-growth startups are cautious about pursuing IPOs and are instead focusing on extending cash runways and considering alternative liquidity options, like acquisitions.

  • Deal Size and Equity Stakes: The 2023 YTD median deal size decreased by 62.1% from its 2021 high, hitting a seven-year low of $11.9 million. Startups are now raising only necessary capital amounts due to the larger equity stakes required by investors, with the median share acquired reaching a decade-high of 14.9%.

Conclusion

The U.S. VC market in Q3 2023 reflects a complex landscape, with varying trends across different stages of investment. Stability in the pre-seed and seed stages contrasts with the challenges and valuation compressions in later stages, particularly in the venture-growth sector. Economic conditions and investor sentiments continue to shape the venture capital environment significantly.



 

Sources:

  • Q3 2023 US VC Valuations Report provided by PitchBook

  • Preqin Report Database

  • PEI Database

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