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VC Valuations

VCs chow down more equity in recent financing rounds

As valuations decrease, the same check size can buy VC investors a larger equity stake in a portfolio company.

There are many gloomy aspects to the venture downturn, but one of the positives for investors is that they can acquire larger stakes in companies.

When prices skyrocketed during the pandemic boom, VCs were so eager to invest in companies that those investors had no choice but to agree to a smaller ownership percentage. But valuations have decreased substantially since then, and the same check size can now buy VCs a larger portion.

“There was a period of time where everyone’s ownership expectations had to go down, and now, I think the ownership positions will be larger,” said Menlo Ventures partner Matt Murphy.

This trend is starting to materialize in the numbers. Investors in the most mature companies have grown their equity stakes to a median of 14.9%, up from a low of 11.3% in 2021, according to PitchBook’s Q3 2023 US VC Valuations Report.

 


The share acquired in earlier-stage rounds hasn’t grown as dramatically, but investors have still been able to acquire a larger part of each company this year than they did in 2021, according to the report.

Ownership percentages aren’t quite yet back to historical levels across all stages. And they’re likely to continue increasing next year as many more companies become forced to raise capital at lower valuations, Murphy said.

For VCs, owning a bigger stake in a portfolio company has benefits. If the startup has a successful exit, the returns are more meaningful for the entire fund. Investors with a larger position also have more influence over the direction of the business, and could even be eligible for a board seat.

Featured image by Ivan Bajic/Getty Images

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