Cooling trend: 2022 European VC valuations in 6 charts

European VC valuations appeared to be holding fast at the start of 2022, but as the downturn progressed toward the end of the year, they began to soften.

Here are six key trends from our 2022 Annual European VC Valuations Report that show how valuations performed over the course of the year.

Early-stage valuations began to cool off in the third quarter of 2022, with the median price tag dropping to €5.2 million (about $5.5 million) in Q4 from a peak of €7.7 million in Q2.

Overall, the median early-stage valuation registered a 23.4% year-over-year (YoY) increase, but the drop in Q4 suggests that investors weren’t as willing to pay the high premiums that were available to startups earlier in 2022.

Late-stage median valuation fell over the course of the year from its peak of €16.8 million in the first quarter to €11.4 million in Q4.

While last quarter did see a recovery from Q3—registering quarter-on-quarter growth of 4.6%—with the downturn expected to persist, it’s likely that additional valuation haircuts are still on the horizon for late-stage companies.

Down rounds fell to 15.2% of overall VC deals in 2022 despite worsening market conditions for European startups. This may be due to companies opting for more heavily structured funding rounds instead of taking a valuation cut, which often paints startups in a negative light. Down rounds are likely to increase in 2023 as cash reserves tighten.

VC deals with nontraditional investor participation increased in size across all stages in 2022. Seed investments saw the biggest growth, with a 37.5% rise from 2021. However, the total value of European deals with nontraditional investor participation was down 15.8% YoY in 2022.

Europe saw its second-highest figure on record for unicorn creation in 2022 with 47 new entrants. However, the downturn impacted their valuations, with the average price tag falling from €3.6 billion in Q1 to €3.3 billion in Q4. Public market volatility as well as high-profile down rounds from the likes of Klarna and SumUp put pressure on the average.

The median exit valuation for European VC-backed companies remained flat at €38 million in 2022 despite a significant drop in activity. The dearth of public listings in Europe was reflected in valuations, with the median falling from €73.4 million in 2021 to €22.5 million last year.

Acquisitions, on the other hand, registered a significant increase. The median valuation currently stands at €38.4 million, representing a YoY rise of 33.3%.

Featured image by Yuichiro Chino/Getty Images