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US startup valuations reach ten year highs

Screen Shot 2013-12-04 at 09.36.22Venturebeat reported yesterday that US startup valuations have reached ten year highs. You can see from the charts above that median valuations have been increasing at all stages from seed through to Series D or later. Series A valuations have increased more slowly than other Series’ which shows that there is a bit of a squeeze at this level, but suggests the ‘crunch’ isn’t that dramatic.

The bigger questions are whether this data indicates we are in a bubble and what might happen next. I guess the first thing to observe is that when anything hits a ten year high there is a reasonable chance that the next movement is down. The next observation is that the generally improving economy and strong exit environment (60 venture backed IPOs so far this year) are justifications for some level of increase. Whilst there are examples of high valuations that investors may end up regretting and I suspect that the general upward trend won’t continue much longer I see no signs that we are in for a hard correction. If prices go up again at the same rate for another year or two then I will revise my opinion, but I don’t think we are there yet.

In our experience Europe valuations remain more muted, although they have also been increasing (if anyone has good data I’d love to see it). At the Series C level and above startup financing is an increasingly global market but below that level inter-continental deals still aren’t that common and the laws of supply and demand have limited price rises in the under-financed European startup market. Moreover, government investment in the startup ecosystem continues to play a significant role here, and that capital will have to be replaced by private capital at some point, which will keep the supply of capital at levels that mitigate against big valuation increases. Tax incentive schemes are a bit of an exception to this analysis and whilst they are very welcome, I acknowledge that they are causing distortions in some parts of the market in some geographies.

 

  • Thomas Stone

    Interesting. Valuation data especially outside of US is hard to come by… For Series Seed then I guess AngelList has a pretty decent slice of the action – https://angel.co/valuations. As expected UK and Western Europe both lower, or “muted”, in the $2.5M to $2.6M range (mean, not median).

    In fact CB Insights recently suggested that seed valuations have fallen compared to last year -https://twitter.com/CBinsights/status/407908947408867328. I am sure the differential $5.3M versus $0.6M is due to inconsistent definitions of “seed” but the trend is as interesting as the actual numbers. I am less familiar with Pitchbook but I know CB Insights makes an effort to cover and source early stage deals which might go “under the radar” of PitchBook, VentureSource, Capital IQ, etc.

    Purely based on the Pitchbook data it would seem that the later stage rounds (Series C and beyond) are over inflated.

  • http://www.theequitykicker.com brisbourne

    Thanks Thomas.