VC Valuations Reach Decade-Highs Across All Stages
November 15, 2018
SEATTLE, Nov. 15, 2018 -- Startups across all deal stages have continued to enjoy substantial increases in valuations, fueled in part by the shift toward fewer but larger venture capital (VC) deals, according to PitchBook's 3Q 2018 VC Valuations report. Late-stage median valuation jumped 50.7%, while early-stage valuations increased 27.5% year-over-year (YoY) and valuation step-ups for both stages reached a 12-year high. The healthy pace of dealmaking in the late-stage has made the coveted unicorn valuation more common than ever before. Currently, there are a total of 145 VC-backed unicorns representing an aggregate valuation of $555.9 billion, a new record. To illustrate unicorn value creation, PitchBook presents a deeper analysis of valuation growth amongst unicorns with ratios including velocity of value creation (VVC), which calculates value created (in millions) per day between valuations, and relative velocity of value creation (RVVC), to measure annualized percentage growth in valuation. Together, the two calculations illustrate the greatest growth in valuation in post-unicorn financings was in 2014 and has since slowed. Looking toward exits, this year's uptick in in venture-backed IPOs has investors keeping a close eye on public equity market performance, as 90-day IPO performance has demonstrated strong parallels with index returns.
"Startups have seen double-digit valuation increases across all stages over the last two years, which appears to be a product of maturing venture markets and unprecedented capital availability," said Joelle Sostheim, analyst at PitchBook. "We would expect that startups run the risk of taking on too much capital, leading to overvaluations, unrestrained capital expenditures and subsequent down rounds. Instead, down rounds are nearing historic lows at 2.7% of total deals. With access to ample sums of capital in the private market, startups now have plentiful resources to sustain their operations and reach levels of maturity that are unprecedented for VC-backed companies."
VC Valuations Overview
Startups have seen annual valuation gains across all stages, most notably in late-stage rounds, with median pre-money valuation of late-stage deals increasing 50.7% YoY.
The median valuation step-ups for early-stage rounds increased from 1.7x in 2017 to 1.9x YTD. Over the same period, median valuation step-ups for late-stage rounds increased from 1.3x to 1.4x.
Founders have raised more capital in exchange for less equity, as evidenced by the increase in valuation step-ups and decline in equity acquired in early-stage VC, which saw a percentage decrease of approximately 4.3 percentage points between 2017 and 2018.
Deals with CVC participation steadily trended larger, creating a valuation premium over startups that received financing without CVC involvement. Median valuation of late-stage startups with corporate backing soared to $140 million, a 2.5x premium over startups without corporate backing.
VC-backed IPO performance closely followed broader public market price movement. Above-average performance of public equity markets in 2016 and 2017 led to attractive valuation step-ups at IPO for the companies that chose to list during that timeframe.
Furthermore, performance data shows 90-day IPO market capitalization strongly paralleled annual index returns. For example, 2013 was the highest return year for Russell 2000 grossing 38.8% in annual returns. It was also the strongest year for 90-day IPO returns, reaching up to 47.8% increase in market capitalization.
So far in 2018, VC-backed IPOs showed the highest 30-day median percent change of market capitalization over the time horizon, at 30.6%. However, recent public market volatility has caused median percent change to drop to 10.5%, further demonstrating the strong parallels between IPOs and index performance.
The number of active unicorns in 2018 has reached 145 startups, representing a 12.4% increase from 2017 and 353.1% increase from 2013. Today's unicorns boast an aggregate valuation of $555.9 billion, an all-time high.
As a measure of valuation growth post-unicorn status, the velocity of value creation ratio (VVC) suggests that unicorns have slowed valuation growth and/or increased time between rounds. In 2014, median VVC sat at 5.9 (or $5.9 million in value created per day between rounds), whereas today, median VVC sits at 2.6.
Similarly, relative velocity of value creation (RVVC), the percentage change in valuations between round per years, illustrates that even when adjusting for the effects of round size, the greatest growth in valuation in post-unicorn financings took place in 2014 and has slumped in recent years.
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