The downturn that has defined the venture capital industry for much of the past two years continued in the third quarter of 2023, according to an update from Carta.
The amount of capital raised by startups on Carta “declined by 38% from Q2 to Q3, and the number of venture fundraising rounds fell by 27%.”
Nearly one in five investments was “a down round.” In terms of dollars raised, total VC funding has now “declined in six of the past seven quarters.”
For founders and startups, Q3 offered “a few encouraging signs: The median pre-money valuation in venture deals increased at nearly every stage.”
Dilution is trending downward “at most stages, which means founders are able to retain ownership of a larger portion of their companies when they raise new cash.”
And Q3 saw a sharp decline in “the frequency of investor-friendly deal terms such as liquidation preferences and cumulative dividends.”
The startup market remains a bustling place: Many companies are “successfully raising venture capital at attractive valuations. But investors are still playing offense in most deal negotiations, and the bar for writing a check remains high.”
Q3 highlights
Early-stage valuations are on the rise: The median pre-money valuation “for deals at both seed stage and Series A increased in Q3 for the second consecutive quarter.” The median Series A valuation “hit $40 million, its highest point in the past five quarters.”
Time between rounds “is lengthening: Among startups that raised a Series C in Q3, the average wait time since raising a Series B was 1,090 days—more than three years.”
At both Series C and Series A, “the average and median time between rounds increased significantly in Q3.” More time in “between primary rounds means startups have to make their existing funds last for longer.”
409A valuations are staying put: About 54% of companies that “received new 409A valuations in Q3 saw their valuation stay the same, the highest rate of flat 409A valuations since the start of 2018.”
About 29% of companies “saw their 409A valuation go up and 16% saw it go down.”
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