Startup Valuations Remain High, But There Are Exceptions

I had hoped that the dramatic startup valuation increases in seed and Series A rounds would start slowing late last year. Unfortunately I haven’t seen much evidence of that so far.

I’d guess that seed stage startup valuations are still up around 2.5x since I started investing in 2014. Venture capitalists are bidding up promising startups to such high valuations that it’s going to be very hard to ever make significant returns on most of these deals.

When you invest in pre-revenue companies at $40 million or $100 million valuations, you’re assuming that there’s a very high chance these companies will survive and grow to reach multibillion-dollar valuations. 

In my experience, at least 80% of seed stage startup investments return nothing. The others return anywhere from 0.5x to 10x. Only a select few return more than 50x. 

So the price at which you invest matters a lot. And unfortunately, prices remain stubbornly high right now. Of course, there are exceptions. Some founders understand that raising at an unrealistic valuation is not good for them or their investors. Deals with this kind of founder are true gems. 

You just have to spend a lot of time looking for them. Don’t settle for pre-revenue companies at $15 million to $50 million valuations. Try to find deals where companies have significant traction and reasonable valuations. They’re out there – they’re just increasingly rare today.