VC Pre-Money Valuations Remained Robust During Q3 2022: Pitchbook Report

Venture capital (VC) pre-money valuations remained robust through Q3 2022, as bearish macroeconomic outlooks spread across Europe,” the team at Pitchbook noted.

Pitchbook also mentioned that “the drop off in public market capitalizations has not filtered into the VC ecosystem, with the valuations of VC-backed companies staying strong.” VC valuations are “tracing above expectations given wider market conditions, and companies may be absorbing drops internally via reduced revenues and growth rates.”

Pitchbook pointed out that pressure is “filtering into the VC ecosystem as recessions bite and reports of down rounds, layoffs, and cost cutting surface.” The valuations “tied to fresh deals to be completed in upcoming months, with realigned revenue multiples, growth estimates, and business costs, could reflect greater declines.”

Pitchbook also noted:

“Through Q3 2022, VC deal value with nontraditional investor participation kept pace with the record set in 2021. With markets shifting considerably in 2022, the glut of nontraditional capital linked to the boom in VC funding during the past five years has flattened.”

The report added:

“Nonetheless, dealmaking has remained elevated from pre-2021 levels. The near-term challenges facing nontraditional investors and the long-term benefits startups can provide creates an interesting backdrop as we enter Q4 2022.”

Pitchbook also mentioned that Unicorns “continued pacing for a record year with 40 new unicorns emerging in Europe year-to-date (YTD) and Q3 deal value increasing 8.8% year-over-year (YoY) to €5.7 billion.” This in itself “shows the resilience of the VC industry given the current macro climate, especially within the late stage of the VC ecosystem.”

The report added that there “have now been more new unicorns YTD than initial public offerings (IPOs) in Europe, with 40 versus 39.” And none of those 39 IPOs “were unicorns, as the IPO market remains muted this year.”

The report continued:

“The exit market pulled back from 2021 levels but remains resilient and higher than pre-2021 levels. Disparity between the top and bottom quartile range for 2022 was almost twice as large as any pre-2021 figure. The resilience of European VC exits is witnessed by the median exit of €39.8 million, an increase of 2.8% YoY and more than double from 2020 thanks to exits via acquisitions, which kept a healthy momentum.”

The report added:

“Despite more and more companies joining the €1 billion-plus unicorn club each year, we notice data is pointing to a cooling in valuations. The average unicorn valuation, which has been on the rise since 2018, has been dropping in 2022 for three consecutive quarters from €4.0 billion in Q1 to €3.7 billion in Q3.”

The team at Pitchbook also mentioned that “looking at median unicorn step-ups, we have a similar story as the figure has been rising for the last five years but has dropped this year from 3.1x post-money valuation to 2.3x post-money valuation, which of course was impacted by the previously mentioned down rounds of Klarna and SumUp.”

The report concluded:

“In summary, there are more unicorns making more deals that are worth less, and they are afraid to go public due to the macroeconomic environment. We expect additional valuation haircuts as unicorns look to extend their VC funding runway to survive stagflation and play the long game.”

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