According to the new “European VC Valuations Report” published by PitchBook, 2024 will be a year of rates, recovery, and rationalisation (3R) which will shape the level and nature of activity in venture capital markets. This will come as a result of dynamic changes within macroeconomic conditions that have a significant impact, specially on financial markets.
Despite the decline in value capital activity in 2023, some median pre-money valuations have shown growth year by year in all stages apart from seed and venture growth. Similarly, all stages apart from venture growth saw a higher median deal value in 2023.
However, despite the fluctuations in numbers within the stages, some verticals show resilience, but also strong activity and a growing appetite for deals.
Median pre-money valuation and deal value across the stages
As stated in the report, pre-seed emerges as one of the most resilient parts of the market in 2023. In terms of pre-money valuation, the stage was the strongest, with its median up to 4 per cent year-over-year, while the median deal value has shown an increase of 8.4 per cent year-over-year. In the seed stage deals, the numbers are a bit different and the trends were mixed. Thus, the median deal value increased 5.3 per cent over the years, whilst the median pre-money valuation has shown a decrease of 9.2 per cent in 2023.
In the early stage, there was an increase in both median deal value (2.8 per cent in 2023) and median valuation (2.5 per cent). The largest increase in the median deal value (11.7 per cent YoY) was recorded in the late stage. Even the fact that the median pre-money valuation increased by less, the late-stage valuations have increased consecutively in the last decade, showing that way signs of resilience in the short and long term.
Venture growth was the only stage that recorded a drop in the median deal value and valuation in 2023, 4.7 per cent and 26.6 per cent over the years, respectively.
Artificial intelligence and cleantech are among the most resilient sectors
When it comes to a median pre-money valuation, according to the report, in 2023 the AI has shown only marginal increases in median seed and early-stage valuations, while venture growth and pre-seed valuations have shown a decrease of 14 per cent. On the contrary, the deal value medians showed more signs of growth, with all stages increasing except for the early stage, which was flat.
Despite different challenges and trends, deal value and early-stage valuations within cleantech also showed resilience. The more established businesses in the vertical defied general trends, as the report points out, with the average deal size for venture growth rising by 26.9 per cent. On the other hand, the average venture growth projection decreased by 30.5 per cent year over year. Thus, with a year-over-year increase of 46.0 per cent in its median estimate, the pre-seed demonstrated the most growth. The late-stage segment of the market continued to experience pressure, as seen by a decrease in its median valuation.
VC exit valuation
According to the report, the median exit valuation in 2023 sat at €23.0 million, which was down 28.7 per cent YoY. The median public listing valuation underperformed the acquisition median. For the former, the median exit valuation declined 60.3 per cent YoY, compared with a 25.2 per cent decline for acquisitions. However, the acquisition market showed more resilience, with the top decile of exit valuations broadly flat and the bottom quartile higher YoY.
As stated in the report, the 2024 will be the year of 3R. Thus, the first pillar of important factors that will shape venture valuations going forward will be rates, which will determine the extent of the recovery that general activity in VC will undergo in 2024. Lower valuations will open up market opportunities that frequently result in rationalisation. Therefore, it is possible that fragmented industries would merge, which may result in more rational market valuations and more rational behavior from industry participants.
Would you like to write the first comment?
Login to post comments