Originally published on Twitter and Linkedin on 01/12/2023
Valuations soared to mind-boggling marks the past two years. It’s hard to find a tech company that’s *not* overvalued in the private market.
Everyone knows a reset is coming – but what will be the new normal?
Over the past decade, valuations are up ~5x (!!) across stages.
Average post-money valuations, by stage, in 2012, 2017, and 2022:
Round size has expanded in lockstep at a pace of 4x+ over the same period.
Average round size, by stage, in 2012, 2017, and 2022:
While valuations ballooned, investor ownership compressed. It feels like there's a floor at ~20% Seed/A and ~15% B/C.
Average dilution, by stage, in 2012, 2017, and 2022:
These charts tell us it has become:
more expensive to invest (valuation)
more expensive to build (round size)
ownership thresholds still exist (dilution)
So what’s the deal landing zone go-forward? It depends on the distribution.
The above is *mean* data, which is heavily driven by outliers, well above medians, and higher than even the 75th percentile of deals.
This is due to the high price tags on great assets [95th percentile+]
Here’s a look at how ‘paying up for the best’ skews growth-stage valuations.
The *mean* valuation was ~5x the median in 2022, and as high as 8x in 2018:
Here’s what that distribution looks like in early-stage and late-stage venture.
Averages again outpace medians & the 75th percentile:
Because 75th+ percentile assets are the only ones that will survive, let alone raise clean rounds in the coming years, I chose to focus on mean data in this thread.
I believe the new normal rhymes most with 2017, with two changes:
Rounds are 20-50% larger: cost to build is up, dry powder, larger funds & institutions
Dilution oscillates from 22% (earlier) to 18% (later) -- firms get disciplined on ownership
Here’s what that means for valuations…
Seed valuations drop 60%+ to a mean of ~$15mm. Round sizes fall to $3.5mm:
Series A valuations drop 35% to ~$60mm; average round is $13mm:
Series B valuations drop 45% to ~$150mm, with right-sized $30mm rounds:
Series C valuations drop 60%+ to $285mm; rounds falls to ~$50mm:
The Valuation Reset:
Seed: $3.5mm on $15.5mm post
Series A: $13mm on $60mm post
Series B: $30mm on $150mm post
Series C: $50mm on $285mm post
Thanks for reading!
Another great resource on valuation and deal trends is this Cooley piece from last month. Specifically the interactive tableau data at the end.
Follow me & @thursdaythreads for more posts, every week.
& thanks to the team here at Bedrock - Tyler Galpin, Sid Vashist, Ben Kany for the lift on this.