The global venture capital market has been facing challenges, and the United States is no exception. Both PitchBook and the NVCA reported that the third quarter of 2023 witnessed a significant decline in overall venture deal value in the past six years and the lowest deal count in approximately three years.
Key Takeaway
Despite the overall decline in the venture capital market, seed-stage startups are experiencing an upward trend in valuations and deal sizes.
Despite this downturn, there is a silver lining in the data. While venture totals remained relatively flat in Q3 2023 compared to Q2 2023, deal volume has actually decreased. This means that startups have managed to raise a similar amount of money in fewer rounds, indicating that each round has yielded more capital on average.
Positive Trends at the Seed Stage
Seed rounds, specifically, are witnessing a positive shift. While both the total value and deal volume of pre-seed and seed deals have decreased in the third quarter, seed rounds are becoming more expensive as the number of transactions decreases.
According to PitchBook, the median pre-money valuation for seed-stage startups through Q3 2023 is $12 million, up from $11.1 million in the previous year. This surpasses the record set in 2022, indicating that startups are on track to reach even higher valuations this year.
Furthermore, the median and mean deal sizes at the seed stage are also increasing. The median seed round size in the United States remains steady at $3 million, suggesting that investors paying a premium are likely getting less for their money compared to last year. Notably, the 75th percentile seed deal reached a peak of $5.3 million in 2023, while the average dipped slightly to $4.5 million through Q3 2023, compared to $4.9 million in 2022.
The Changing Landscape of Seed Deals
As the venture capital market grapples with challenges, the seed stage is showing resilience and growth. Startups are commanding higher valuations and larger deal sizes, even as the overall deal count declines. This indicates a shift towards quality over quantity, with investors willing to pay a premium for promising seed-stage companies.
While the downturn in the venture capital market may be cause for concern, the positive trends at the seed stage offer hope and demonstrate the potential for continued growth and innovation in the startup ecosystem.
