In late-stage VC valuations, what went up has come down—and then some

In late-stage VC valuations, what went up has come down—and then some

Author: Kevin Dowd
Read time:  4 minutes
Published date:  April 21, 2023
Updated date:  April 23, 2024
At Series D and beyond, median round sizes continued to decline for venture-backed startups in Q1 2023.

It was a difficult start to 2023 for late-stage startups hunting for new venture capital.

The median pre-money valuation in Series D deals fell to $243 million during the first quarter of the year, according to the first cut of Carta’s Q1 data. That’s down 19% from the fourth quarter of 2022 and down 70% on a year-over-year basis. The median pre-money valuation for deals at Series E and beyond, meanwhile, plunged to $251 million, down 55% from last quarter and 82% year over year. 

These are the lowest quarterly figures in at least three years.

Series D and E+ median pre-money valuation by stage and quarter, Q12020-Q12023

The venture capital market in late 2020 and 2021 was defined by rapidly rising valuations, particularly at these later stages. The market in 2022 was defined by an even more rapid reversal. What went up has now come down, and then some. 

One reason late-stage private valuations climbed so rapidly in 2020 and 2021 is because valuations were also climbing for tech companies on the public markets. Trends in public valuations tend to trickle down to the private markets, particularly at later stages, because the goal for many mature private companies is to conduct an IPO in the near future and transition onto the public markets themselves. 

The same logic held in 2022, even as the IPO market cooled considerably: As public tech valuations dipped, so too did private valuations. 

But public and private diverged in the first quarter of 2023. The Nasdaq Composite gained 18% during Q1, and the Nasdaq 100 technology sector index gained 22%. Late-stage private valuations moved in the opposite direction.   

For late-stage executives who might be trying to raise new funding in the months to come, those could be intriguing numbers. Public valuations tend to react more quickly to broader market shifts than private valuations. As such, public valuations are sometimes considered a leading indicator for what might come next in the private markets. 

Venture investor Kamran Ansari, however, cautions against drawing too close a link between public and private markets. A former board partner at Greycroft and former head of corporate strategy and development at Pinterest, Ansari notes that public tech valuations fell further and faster last year than private tech valuations. Many private companies tried to wait out a slow market by postponing new fundraising efforts. Now, he sees public companies emerging from the worst of the downswing, while private companies that hoped to avoid a down round are being forced to grapple with the realities of a valuation reset. 

“If a late-stage investor has a dollar, they are going to invest where they see the most opportunity, which in recent months has been the stable, established tech businesses in the public sector,” Ansari says. “The issue here is that the public markets already took their medicine, with many tech stocks down 60-70% from 2021 highs. This is a different dynamic from private companies, in which you only see a valuation change when the company goes out to raise a new round.” 

The long fundraising timelines of the private markets mean that different startups are at different stages of their response to the downward shift in valuations. Many of those who raised recent rounds have, as Ansari puts it, already taken their medicine. Those trying to raise their first new round since the market shifted may still have a bitter pill to swallow. 

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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.