Stage & Sector Matter for Valuations

February 28, 2023

Everyone I am speaking to at the moment is bothered about the valuations of private companies, so it’s good news when some statistics are published that provide some insights to help us all.

Pitchbook, has recently published a report on trends in US VC valuations between 2012 and 2022. It highlights how both sector and stage matter when it comes to valuations.

The data shows the following trends:

• Angel backed deals have been more susceptible to upticks and dips in valuation over the last 10 years compared to seed-stage companies in the US which have continued to push upwards year on year.
• Since 2020, pre-money valuations at the early stage have been sky-high compared with the previous periods, although this could be because investors have got better at understanding why there is value in potential unicorns, not least because investors now have the know how to help a company reach its potential.
• The particularly high jump in valuations between 2020 and 2021 in part reflects the volume of, ‘dry powder,’ in the VC market. However, this picture will probably be more complicated going forward as investors worry about whether factors other than availability of funding and competition for deals impact on companies cash balances and therefore survival and success.  It is imperative that we keep an eye on how valuations change for investment rounds as we go into Q2 of 2023, so that we use the correct comparable data.
• The weakness in valuations at the later stages of the funding ladder is clear. Pre-money valuations at the venture-growth stage were down 19.4% in 2022. There is some dissonance here. Logically, I would have expected valuations to have fallen further at the earlier, riskier end of the market, but this did not happen.  Perhaps more importantly will 2023 see earlier stage valuations fall back or will we see later stage valuations recover?
• Different sectors, even within the broader tech landscape are seeing very different profiles in turns of rises and falls in valuations.  It is more important than ever to dig deep into a sector to understand which comparables are actually relevant for a specific valuations exercise.

Click the link to our summary analysis of the data here.

In our report you can also see data on valuations trends in the following sectors and some thoughts on the why ultimately it’s the exit valuation that matters.

• BioTech
• FinTech
• Enterprise Tech
• Consumer Tech

You can also read the full Pitchbook report here.

If there is anything in our report that you would like to discuss, or indeed, if you have a specific valuation in one of these sectors where getting doing the right underlying research really matters, please get in touch.