The world of startups is constantly evolving, with new ideas and innovations emerging all the time. In recent years, many startups have seen their valuations soar to new heights, attracting huge amounts of investment from venture capitalists and other investors. However, 2022 saw a shift in this trend, with valuations for mid and late stage startups tumbling from their inflated highs.
According to a report by CB Insights, private tech valuations experienced a full-blown reset by the fourth quarter of 2022. Median valuations for global late and mid-stage startups were down significantly from the fourth quarter of 2021, registering year-over-year declines ranging from 24% to 50%. This was largely due to rising interest rates, public stock turmoil, and a stalling IPO market, which caught up to private tech.
One notable exception to this trend was early-stage startups. While off their peak in the second quarter of 2022, seed and angel tech company valuations showed surprising resilience, coming in at 3% above the fourth quarter of 2021 levels. This is good news for early-stage startups, which continue to attract interest and investment from venture capitalists and other investors.
Despite the decline in valuations for mid and late-stage startups, investors are still interested in the potential of early-stage startups. Last year, late-stage investors (Series D+) moved to retain power over liquidation preferences in an environment where far less capital chased fewer deals. In the US, 44% of late-stage deals in 2022 (and 50% in Q4’22) were negotiated with seniority or tiered payout structures — rising from the norm set over the previous two years.
In conclusion, the startup world is always in flux, with valuations rising and falling depending on a range of factors. While 2022 saw a decline in valuations for mid and late-stage startups, early-stage startups continue to attract interest and investment. It will be interesting to see how the startup world evolves in the years to come and what opportunities emerge for new and innovative companies.