For venture-backed companies, the last couple of years have been a rollercoaster, especially outside the booming generative AI sector.
Fundraising at higher valuations was nearly impossible. However, as of mid-2024, the tide seems to have turned.
Tom Loverro, a general partner at IVP, suggests that the worst of the downturn is over and says startups that survived should shift from cash preservation mode to business growth.
This sentiment isn’t without basis. PitchBook data shows that valuations for all but seed-stage companies fell in 2024, but in the first half of 2024, median early- and late-stage deal valuations hit all-time highs.
Stephanie Choo from Portage Ventures highlights that companies securing term sheets are seeing high valuations.
Despite fintech’s recent fall from favor, companies like the U.K.’s Monzo have bounced back, securing a $5 billion valuation, a 15% increase from early 2022.
Choo notes that startups’ cost-cutting measures over the past two years have often resulted in growth, enabling them to surpass previous valuations. Samir Kaji of Allocate shares this optimism, noting improved fundraising conditions.
“Things are much more sanguine than I’ve seen since the beginning of 2022,” he said. “The capital markets are coming back slowly, and if you can achieve real growth and fundamentals, there is going to be capital for [your startup].”
Yet, Kyle Stanford of PitchBook cautions that these high valuations might be misleading. Deal volume remains sluggish, and many startups unable to secure higher valuations resorted to unpriced rounds or delayed fundraising.
“It’s a good market right now, if you are a strong company, but if you’re struggling to hit growth targets you had set out before the pandemic, it’s a really hard market,” he said.
Kaji acknowledges the divide between successful startups and those struggling but notes that the pool of companies able to raise at higher valuations has grown in 2024.
Several factors contribute to this rebound. There’s renewed optimism about inflation control, potential Fed interest rate cuts, and a significant stock market rally this year.
Additionally, the prominence of AI startups, which typically secure higher valuations, has bolstered the overall market sentiment.
As the venture capital landscape shifts, startups demonstrating robust growth and strong fundamentals stand to benefit the most from this renewed investor confidence.
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