Startup valuations have quietly reached an all-time high. Some investors say the recession is over. | TechCrunch

Aside from AI-powered businesses, the last few years have been relatively difficult for venture-backed companies. Very few startups have managed to raise funding at prices beyond their previous valuations.

Now, nearly two years after the investment slump began in early 2022, some investors, like IVP partner Tom LaVero, say the worst of the recession is behind us and that the startups that survived need to switch from holding cash to spending money. to turn Growth

These are not completely empty words. According to data from PitchBook, valuations for all but early-stage companies are down in 2023 compared to the previous year. But during the first six months of 2024, the prices investors were willing to pay for new deals by US-based companies not only improved, but also reached record highs for early-stage and late-stage deals, according to the latest report. From PitchBook and the National Venture Capital Association.

“Valuations have been high for companies receiving term papers,” said Stephanie Chu, a partner at fintech-focused Portage Ventures.

While fintech has not been a favorite of investors since the beginning of the recession, Chu said the number of companies able to raise capital at higher valuations has increased since the start of the year. He pointed to British rival bank Monzo, which was valued at more than $5 billion in March, up nearly 15 percent from the $4.5 billion investors had committed to it in early 2022.

Chu said that over the past two years, many startups have cut costs, which has helped them grow and in some cases surpass their previous valuations.

Sameer Kaji, founder of Allocate, a startup that allows family offices and wealth advisors to invest in VC funds, is also optimistic that valuations and the fundraising environment for startups have improved this year. Is. “Things I’ve seen since the start of 2022 are much calmer,” he said. “Capital markets are slowly coming back and if you can get real, fundamental growth, the capital will be there for it. [your startup]”

But those high valuations are “always” somewhat misleading, said Kyle Stanford, senior U.S. venture capital analyst at PitchBook. This is because trading volume is still slow. Fewer companies raised a new round with a specific valuation in the first half of 2024 than in a typical six-month period.

PitchBook’s valuation dataset consists mostly of strong companies that could grow to their previous valuations, but startups that couldn’t get funding at higher valuations may be left out of the data. Stanford explained that many of them were driven through convertible notes, internal rounds or delayed capital raisings in general.

“It’s a good market right now if you’re a strong company, but it’s a really tough market if you’re struggling to meet the growth targets you set before the pandemic,” he said.

Kaji echoed the sentiment, but his take was a little happier. While startups are still divided into “haves” and “have-nots,” the pool of companies that could potentially scale higher valuations has gotten bigger in 2024, he said.

Valuations of startups are improving for stronger companies for several reasons.

There is renewed optimism that inflation is under control and the US Federal Reserve may soon cut interest rates. In addition, the stock market has witnessed significant growth this year, which has affected the outlook for private investors. Ultimately, Stanford said, a significant portion of companies raising capital in 2024 will be AI companies, and AI startups will receive much higher valuations than other sectors.