In recent years, venture-backed companies faced challenges, with few startups able to raise funding at prices exceeding their previous valuations. However, as we move beyond the venture slump that began in early 2022, some investors, like IVP general partner Tom Loverro, believe the worst is over. It is suggested that surviving startups should shift from cash preservation mode to investing in growth.
Valuations for companies, excluding seed-stage firms, dropped in 2023 according to PitchBook data. However, in the first half of 2024, investor interest in US-based companies rebounded strongly, reaching record highs for median early- and late-stage deals. Stephanie Choo from Portage Ventures noted that companies receiving term sheets are being offered high valuations.
Despite fintech companies being out of favor recently, the number of companies securing funding at higher valuations has increased. UK’s Monzo bank saw a significant valuation jump to over $5 billion in May. Many startups have cut spending over the last two years, enabling growth and surpassing previous valuations, according to Choo.
Samir Kaji of Allocate shared optimism, believing that valuations and the fundraising environment have improved for startups this year. There is a sense of positivity in the market, with a growing number of companies potentially raising funds at higher valuations in 2024.
While valuations are at “all-time” highs, Kyle Stanford of PitchBook cautioned that deal volume remains low. Many startups that couldn’t secure funding at higher valuations may not be reflected in the data. It’s a favorable market for strong companies, but challenging for those struggling to meet pre-pandemic growth targets.
Startup valuations for stronger companies are rising due to several factors, including renewed optimism about inflation control, potential interest rate cuts by the US Fed, stock market performance, and the high valuations received by AI companies.
