8MAY - 2023OPINIONIN MYBy Mark Marcus, CFA, Director of Valuation Services, TMF GroupThere is little doubt that this year, more than many in the recent past, valuations will be scrutinized by auditors and investors alike, as it is the most subjective and impactful component of a venture capital (VC) fund's financial statements. The bear market in 2022 has been particularly acute for venture-backed technology companies, many of which have seen values cut 75 percent or more. In 2022, PitchBook's VC Backed IPO Index was down approximately 60 percent, an indication of how broad-based the pullback has been for previously high-flying recent entrants to the public markets. Unfortunately for venture investors, the bear market has not been exclusive to public markets. One high-profile example is Instacart, which raised capital at a $39 billion valuation in early 2021 and cut that to $10 billion by the end of 2022.In spite of everything transpiring in the public markets and the market for later-stage VC-backed companies, where the average pre-money value was down 15 percent in 2022, the picture is better for earlier-stage companies. The median pre-money valuation for seed-stage companies increased 16 percent in 2022 to $10.5 million. Similarly, the median pre-money valuation for early-stage companies increased 22 percent to $55.0 million. The obvious question that arises from this data is why has the market for seed and early-stage companies not followed that of their later-stage peers? One hypothesis would be that early-stage companies have delayed Mark MarcusFROM DARLINGS TO DOGS? VENTURE EQUITY VALUATIONS IN THE CURRENT MARKET
< Page 7 | Page 9 >