Valuations of most-valuable VC-backed companies fall by half

Valuations of most-valuable VC-backed companies fall by half

Last year saw the creation of 340 new unicorns. That means a company received new funding at a valuation of $1 billion or more almost every day of 2021, including weekends.

But these companies may have a hard time retaining their unicorn status if they need to raise another round in the near future.

By Q3 2022, investors willing to value a startup at the unicorn level all but disappeared amid rising interest rates and drastically lower tech stock prices, according to PitchBook’s latest US VC Valuation report.

After fetching valuations of $1 billion or more for six consecutive quarters, the top decile of late-stage startups by valuation have seen their price plummet to $680 million in Q3 2022.

That valuation represents a 54% decrease from a pre-money valuation of $1.48 billion garnered by the top 10% of late-stage deals in Q3 2021. The dramatic decline indicates that prices of the best-of-breed late-stage private companies are coming closer in line with their publicly traded counterparts. Stocks of formerly VC-backed companies have cratered by 69% since a year ago, according to the PitchBook’s VC-backed IPO Index as of Monday.

That may be a bad sign for the cohort of more than 1,200 active unicorns, especially those minted last year, making this group the most susceptible to down rounds.

“If you’re trying to raise capital now, you are not going to get anywhere near the valuation you want,” said Kyle Stanford, a PitchBook senior analyst. “There’s no reason to believe the public market multiples that were pushing up valuations in the private market last year are going to go back to where they were then.”

Since crossover investors that rushed into VC during the pandemic have lowered their participation in late-stage VC by 74% in Q3 from a record of $44.7 billion in Q3 2021, Stanford predicts that less capital will be available to support unicorn-sized companies in the near future.

“I’m sure there will be strong unicorn companies that will be able to sustain themselves,” he said. “But some companies in that group will quickly become ‘not-unicorns,’ and some will probably go out of business.”

Related read: unicorn company tracker

Featured image by Alberto Andrei Rosu/Shutterstock

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