- Elevated levels of capital availability and competition at the early stage is leading early-stage valuation step-ups to historic highs.
- Strong returns for VC investors in recent years and the precipitous rise of valuations over the last decade, have encouraged a host of new entrants into the ecosystem.
- The VC asset class may be nearing a ceiling on reasonable fund size for startup financings, as investors run the risk of overpaying in deals given high levels of competition for too-few quality investment opportunities.
Median early-stage valuation step-ups have increased annually over the past two years, climbing to 1.9 times in 2018. We believe the median will continue to rise in 2019 because of the accelerating velocity of valuation increases at the early stage. Median premoney valuations at the early stage rose 27.5% year over year versus the angel and seed stage, which rose 12.0% year over year. We have two potential theories for why this may be occurring. First, startups may be becoming more effective at putting seed-stage capital to work, accelerating growth after raising a seed round. Second, competition between VCs to invest in top deals at the early stages may be heating up faster than at the angel and seed stage.