5/9/2024: Startup Down Rounds Hit Record High
Carta just published its State of Private Markets report for Q1 2024. There is a lot of interesting data there and it’s consistent with what I have observed. First, there’s a lot of down rounds. 23% of the new rounds Carta recorded are down rounds. This makes sense as the 2021 valuations were too high and it’s now coming back to normal. Down rounds used to carry some stigma but nowadays as long as founders can raise new money, valuations are less of a concern. I participated in two down rounds in Q1 and these are promising companies that have to adjust to the new fundraising reality but hopefully they will do great with the new funding as their competitors go out of business.
Overall, the startup fundraising environment is still pretty tough. The deal count fell 33% from Q4 2023 to Q1 2024. The median seed valuation remains pretty stable at around ~$13M while the median series A valuation is ~$40M, dropping from the Q1 2022 peak of ~$50M. In essence, the early stage valuations didn’t really move but the number of startups who were able to secure funding declined. Interestingly, the number of Series C deals rose 14% from Q4 to Q1 and total cash raised by series C rounds rose 44% QoQ and 130% YoY!! But the valuations have reset. Median series C valuation in Q1 2024 was $195.7M vs. $384M at the peak of Q2 2021. It appears some series B companies are progressing well and are able to get series C funding with more realistic valuations. Late stage deals are still far and in between. I suppose a lot of these companies should just go IPO to get the pipeline going. The report didn’t include any statistics about company shutdowns. I think it will give us a clearer picture if we are able to get that. From my own data set, 6 out of 28(!!!) companies I invested in 2021 have shut down. 13 have since raised additional financing. The J-curve is working its magic. Hopefully, the 2021 cohort will generate some positive ROI but in retrospect, the maniac valuations in the go-go years really make it harder to work.