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Venture Monitor

VC finds its footing as headwinds weaken

The venture capital market has started to stabilize after a sharp correction that began last year.

The venture capital market has started to stabilize after a sharp correction that began last year. But investors have yet to regain the optimism that fuels startup bull cycles, despite a fervor around generative AI and a comeback for large tech stocks.

Here’s a first look at US VC data from the Q2 2023 PitchBook-NVCA Venture Monitor, which will be published next week.

 

Investors have shown restraint in deal selection as they weigh current opportunities against the knowledge that future fundraising will be more difficult and startup valuations may continue to drop.

US VC-backed companies raised $39.8 billion in Q2, a 48% decline year-over-year. Zooming out, the situation looks less dire: US startups are on track to raise about the same amount as they did in 2020.

As investors flex their newfound negotiating power, prices for startups are falling, but they remain elevated relative to pre-2021 levels at most stages. Median US VC valuations have continued to correct across all stages except for the seed stage, where valuations are modestly higher than last year. The decline has been sharpest at the venture-growth stage, where the median pre-money valuation fell 62% YoY to roughly $126 million.

Through last year, early-stage valuations continued to grow, but they are now in retreat: the median early-stage valuation declined 20% this year to $39.8 million.

 

Few VC-backed companies have achieved notable exits so far this year. The IPO market has yet to attract a significant tech listing, and acquisitions have been dampened by corporate cost-cutting and higher borrowing costs for leveraged buyouts.

The dearth of listings and sales means fewer returns to LPs and less cash available for commitments to new funds. US VC fundraising totaled just $33.3 billion in the first half of the year, on pace for the lowest annual total since 2017.

There are glimmers of hope, however. The continued recovery of tech valuations in public markets, as well as a recent bump in listings could lure startups back to the IPO market. Several generative AI startups have also been acquired in recent weeks: Databricks agreed to pay $1.3 billion for MosaicML, and Thomson Reuters inked a $650 million deal for legal AI startup Casetext.

Featured image by Caroline Suttie/PitchBook News

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