Future tech exits will have a lot of work ahead of them. Startup valuations are on the rise, putting pressure upon tomorrow's IPOs.
While inflation may be temporary in consumer prices, startup valuations have been rising steadily over the past quarters.
This is the obvious conclusion from the PitchBook report that looked into valuation data from several startup funding events in the United States. The data is only applicable to the U.S. startup sector, but the trends are likely to be global as the same venture rush which has driven record capital into U.S. startups is also happening in countries like India, Latin America and Europe.
It is fascinating to see the rapidly increasing startup price chart. The data suggests that future IPOs must not only maintain startup equity valuations at the point of exit but also exceed their private-market prices. Changes in antitrust regulations could hinder large future deals. This would leave a lot of startups with high price tags but only one path to liquidity.
Investors seem to implicitly believe that the future IPO market would accelerate over a long period of time at attractive prices.
This situation is familiar to all: It's the "unicorn traffic jam" that we have covered for years. In which global startup markets create far fewer startups worth $1Billion or more than what the public markets historically accept across the transom, it's the unicorn traffic jam.
Let's get to the big numbers.
Startup valuations: Going up and going higher
PitchBook summarized the following: Round sizes rise as valuations rise. Investors are not getting more ownership, despite having to spend more on deal access.
Deal sizes in the early stage market are increasing as follows:
As the following chart illustrates, prices are also increasing.
This leads to a decline in equity take rate:
These charts show how rapidly venture capital is evolving. In 2020, for example, the median value of an early-stage company was $16 million. This is a 54% relative velocity. It reached $39.4million in 2021 (120% relative velocity). That 2020 figure was also a record. It was just broken.
Other superlatives in the PitchBook dataset are worth noting. The average pre-money value of enterprise-focused seed companies was $11 million in 2021's first half, which is an all-time record. After rising steadily since 2011, early-stage valuations of enterprise-focused startups hit new records at $92.7 million, $43 million median.
Late-stage valuations of enterprise tech startups have turned vertical (chart to the right).
