Average startup valuations are in decline, new data indicates.
In March, The Exchange parsed a dataset from Carta, a unicorn whose software helps companies manage their cap table, which showed early indications that the startup valuation market was changing. A look at Carta’s full Q1 data collated by its head of insights, Peter Walker, clarifies the situation: Valuations are in decline, but not evenly.
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Indeed, new data shows a spectrum of declines in the average valuation for startups that Carta has visibility into — thousands of deals from tens of thousands of companies — which matches current venture capitalist chatter that the value of startups has dramatically changed since 2021 highs.
For founders and investors alike, outliers will remain. Some startups will be able to raise like it’s 2021, but for most upstart tech concerns, the old norms are out the window.
This morning, let’s explore new marks from Carta, pulling from raw data and looking to see where valuations are falling the fastest — and the slowest. If you are building or investing, this is the new reality.
The damage
We’re writing ahead of Carta’s impending report, so we have no pretty charts to borrow from the company’s data team. We’ll roll along in text for today. No matter, starting early and going late, here’s what Carta has to say about valuations:
- The average valuation of seed rounds on a post-money basis in 2021 peaked at $38.5 million in the fourth quarter. In the first quarter of 2022, the average valuation of seed rounds on a post-money basis fell to $36.5 million, a change of around 5%.
- The average valuation of a Series A round on a post-money basis peaked last year at $130.7 million in Q3. In the first quarter of 2022, that figure fell to $98.4 million, a decline of around 25%.
- The average valuation of a Series B round on a post-money basis peaked last year at $331.4 million in Q3. In the first quarter of 2022, that figure fell to $303.6 million, a decline of around 8%.
- The average valuation of a Series C round on a post-money basis peaked last year at $1.08 billion in Q4. In the first quarter of 2022, that figure fell to $625.1 million, a decline of around 42%.
- The average valuation of a Series D round on a post-money basis peaked last year at $1.93 billion in Q3. In the first quarter of 2022, that figure fell to $1.88 billion, or a decline of around 2.5%.
Carta data also looks at rounds from Series E and beyond, but because the data is aggregated due to fewer total entries, we’ll leave that aside for now.
What’s simply astounding about the above data is how contrary it is to a prevailing narrative in the startup investing market, namely that late-stage deals are suffering from rapid repricing. So, what gives?
The likely answer is simple and surprisingly non-nefarious. My guess is that the market is moving faster than full-quarter data can fully detail. Yes, all startup rounds are in decline in average valuation terms, but falling later-stage valuations are perhaps a more March-May trend, while the above data includes January and February, two periods that were closer to Q4 highs, and therefore likely less impacted by changing market conditions.
In contrast, the modest decline in seed valuations tracks with conventional wisdom, that the earliest startup rounds are holding up in pricing terms despite a market in decline.
The above data, then, is not a set of information that should engender complete confidence; don’t read it and presume that late-stage deal values are going to hold steady. They will not. But that pain has not yet fully showed up in the data, setting us up for a simply fascinating Q2.
Tired of all the bad news? Don’t be. This is the natural comedown from a multiyear period of frantic deal-making and a turn away from business fundamentals. The pendulum always swings back. And in the case of startups, the move back toward saner pricing could wind up good for all parties — startups won’t raise at prices they can’t support, and investors won’t find themselves upside-down in so many deals.
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