Early-stage VC valuations were at or near new highs in Q3
Early-stage VC valuations were at or near new highs in Q3
Author:
Kevin Dowd
|
Read time:
4 minutes
Published date:
November 25, 2024
The median seed valuation climbed to $14.8 million and the median Series A valuation rose to $45 million in Q3, as investors became more proactive after several quarters of patience.
A divergence in deal counts
An increase in enthusiasm among investors may be driving early-stage valuations higher, particularly in the case of buzzy sectors like AI. But at this point, at least, it’s not leading to a concurrent increase in deals.
At the moment, startups have logged 471 new seed investments from Q3 on Carta and 358 new deals at Series A. Both of these figures will continue to increase in the weeks to come as more transactions are reported. For now, though, they represent a downward trend. Seed deal count is down 22% quarter over quarter and 28% year over year, while Series A count is down 26% quarter over quarter and 8% year over year.
At both stages, it had appeared in previous quarters that deal numbers were beginning to recover from the recent slowdown. In particular, Q2 showed promising signs. But activity at both stages continues to display some quarter-to-quarter volatility.
The past few months have indeed seen a rise in later-stage activity on Carta. Year over year, deal counts are up 23% at Series B, flat at Series C, and up 72% at Series D.
The macro picture
Many factors contributed to the overall slowdown in venture valuations and deal counts that began in 2022 and continued throughout 2023. A primary one is the rise in interest rates.
Rates were at or near zero through much of the 2010s and early 2020s. In that sort of environment, LPs are less likely to park their capital in low-yielding bonds or other fixed-income assets and more likely to invest in venture capital, which holds the potential of higher returns. Once the Federal Reserve began to increase rates, in 2022, bonds and similar asset classes began to offer better returns, and VC lost some of its appeal.
But the Fed cut rates by half a percentage point in September, then by another quarter point in November. While the macroeconomic future is of course impossible to predict, these cuts would seem to bode well for the broader VC landscape.
The fact that early-stage valuations are again on the rise is a sign of the market’s strength. But many VCs and founders believe that the recent comedown in the venture market was a good thing—a reminder that building successful companies is hard, and that steady growth and immediate success are not guaranteed.
Author: Kevin Dowd
Kevin Dowd is a senior writer covering the private markets. Prior to joining Carta, he reported on venture capital and private equity at Forbes, where he wrote the Deal Flow newsletter, and at PitchBook, where he wrote The Weekend Pitch.