There are many respected VCs who are saying today's market is as "frothy" as any they've ever seen.
And hey, they aren't wrong. The AI hype combined with some severe FOMO is certainly driving up valuations across venture stages.
But if you focus on the early stage, as in the chart above which shows seed valuation tiers, a clear pattern emerges: this hype is basically just a Bay Area phenomenon, with a little assist from NYC.
A full two-thirds of valuations in the top decile are going to startups in the Bay (44%) or NYC (22%). All the wild round term sheets, all the pre-empting and allocation battles, it's all an SF microcosm.
Which begs two questions:
Will the companies with the highest seed valuations turn out to be the best fund returners in the end?
Will other markets move to catch SF rates — or will SF suffer some deflation?
I guess the third option here is that SF remains its own bubble and the rest of the venture market operates by different logic. In fact that's probably my bet for what happens next. A mere 20% of rounds completed by Bay Area startups had valuations below the national median.
There is no national market for startups. There's really the Bay Area and everywhere else.
Onwards!
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Cheers, Peter Walker
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