Dry powder is as high as $1.3 trillion globally for private equity and $580 billion globally for VC, according to one estimate from of . The dry powder in 2021 was roughly the same, he said, but investors were putting money to work at a record pace.

• See Also: The Largest US Venture Funding Deals Of 2023

Investors are likely to hold back in 2023, at least in the shorter term, as funding valuations trend down. Founders are becoming more disciplined around spending, which will impact growth. And limited partners who overextended in venture capital assets would prefer firms to come back to raise subsequent funds with wider time horizons.

All of these new conditions will make for a much more cautious funding environment next year.听

While fundraising by venture investors increased in 2022, funding to startups slowed significantly. In the third quarter of 2022, global venture funding dropped by more than 50% year over year, per a SA国际传媒 News analysis. Late-stage funding has plummeted even more dramatically by 63% year over year.听

The LP perspective聽

Limited partners who invest in venture funds are expected to slow down commitments in coming years.听聽

鈥淲hile I have not heard of many LPs looking to get out of the venture asset class, I do generally expect to see increased LP churn in 2023 and potentially into 2024,鈥� , a partner at , which runs its allocation to venture funds in the U.S. and globally, said in written responses.听聽

鈥淚f history is any guide looking back from the 2000 dot-com bubble bursting and the Great Recession of 2009, I think we will see a reduction in 2023 in the total number of venture funds raised, and possibly into 2024,鈥� she said.听

Fund managers should expect a tougher fundraising climate, Clarkson said. 鈥淚 don鈥檛 believe this means emerging venture managers won鈥檛 get funded, but I do think the bar has been raised for all venture managers on what constitutes true underlying performance versus high paper valuations.鈥�

2021 multiples

Many of the high valuations set in 2021’s frothy market, particularly for late-stage startups, are starting to look unsustainable, according to industry watchers.听

This is 鈥渞eflected very much in private markets, where there’s tremendous uncertainty around the forward path of pricing,鈥� according to , a partner at . 鈥淚n the middle and later stages it’s been a much more difficult year to find compelling opportunities.鈥�

Fewer companies are seeking funding at late stage either because they have raised large fundings in recent years that can tide them over or because they are cost-cutting or seeking other types of capital, as venture capital is not flowing as freely as it did in 2021.

As investors turn away from late-stage financings due to pressure on valuations, companies that need to raise funding face a dilemma. Those not able to grow into prior valuations will be forced to reset. For example, in July 聽slashed its valuation from $45.5 billion to $6.7 billion to better position itself should it plan to go public in the next year or two. Meanwhile, , cut its internal employee share price in October, resulting in an internal valuation cut from $39 billion to $24 billion. And in September, cut its valuation in travel tech startup from $9.6 billion to $2.7 billion.听

Sitting on funds

With record funds raised, how will the venture markets look in 2023 and beyond?聽

鈥淲hile there is still pressure to invest, it depends on fund size/length, relationship with LPs, and market volatility,鈥� Lightspeed鈥檚 Ephrati, who manages the firm鈥檚 follow-on investment practice, wrote in an emailed response. 鈥淚f a fund size is large ($1 billion-plus) with a 10-plus-year lifespan, investors can make the argument that markets are too volatile, private and public valuations have yet to converge, and there will be better buying opportunities in 2024.鈥澛�

He anticipates that VC financings will pick up in the second half of 2023.

鈥淎 ton of great companies will raise in Q3/Q4 2023 because they’re (a) running out of cash or (b) would like to take advantage of friendlier private market conditions,鈥� he said. 鈥淭hose companies will also have grown into their 2021 valuation 鈥� meaning, the gap and price distortion between a private company’s last round valuation and where public market comparables are trading will be smaller.鈥�

Tech rout

Companies last year were advised to grow at all costs. Investors rewarded them with funding and high values, which in turn led to more than 1,400 private companies valued at $1 billion or more on The SA国际传媒 Unicorn Board. The majority of those, 1,192, have raised funding since the beginning of 2021. And over 900 of those joined the board since the beginning of 2021.

In 2022 the message became to cut costs and extend runway.听

What happens in 2023 is still unclear. Will those same companies that come through to the other side and ready to raise funding meet a venture market willing to fund them?

This year鈥檚 venture market pales in comparison to the salad days of last year. That鈥檚 even true for one of the hottest sectors of 2021: cybersecurity.

Last year, VC-backed cybersecurity firms raised nearly $23 billion in funding鈥攁 record鈥攁ccording to SA国际传媒 . This year鈥檚 numbers are trending to be well south of even $20 billion.

However, that doesn鈥檛 mean some companies haven鈥檛 snagged large rounds and valuations. This year cyber has minted 16 new unicorns. A couple of those new unicorns saw massive valuation increases just from last year.

Not surprisingly, those startups are in a couple of the hottest sectors in security.

Crypto leads the way in security

Platforms that help analyze and secure blockchain data鈥攊ncluding crypto transactions鈥攈ave seen significant interest in the market, as mentioned previously.

Web3 and blockchain security-focused startup was able to ride some of that investment interest to unicorn level. The New York-based company just missed hitting a $1 billion valuation in December when it raised an $80 million Series B from . However, it increased that valuation by 120% just four months later when it added another $88 million to that Series B, led by and .

That extension gave the pioneer in blockchain security tech a $2 billion valuation.听

CertiK wasn鈥檛 done with its Series B, as it announced another $60 million investment from 2 and in April. The startup uses AI technology to protect and monitor blockchain protocols and smart contracts. With that market only likely to grow, CertiK鈥檚 valuation may as well.

Complexity of compliance

Compliance is not the sexiest of cybersecurity’s many subsectors. However, it is necessary鈥攁nd valuable鈥攁s San Francisco-based has shown.

The startup helps organizations comply with cybersecurity standards including making sure applications process customer data securely and software protects users鈥� business data.听

Usually, ensuring enterprises comply with such initiatives can be an arduous manual process. Vanta helps automate that process and makes sure such companies are not out of compliance or not meeting certain industry standards.

While that may not sound exciting, it is to investors. In May 2021, the company raised a $50 million Series A led by Sequoia Capital at only a half-unicorn valuation. Thirteen months later, that valuation ballooned 222% to $1.6 billion as the startup closed a $110 million Series B led by .

Investors like things that are necessary鈥攁nd compliance is mandatory.

Going south

Not all cybersecurity companies that saw their valuations massively increase from last year were based in the U.S.

Brazil-based identification company actually became a unicorn about a year ago after raising a $120 million Series C led by and . However, the startup more than doubled that valuation to $2.6 billion in April when it closed a fresh $100 million Series D led by .

Unico IDtech is not new. The company was originally founded in 2007, but has shifted its business to focus more on facial recognition to authenticate identities and digital hiring admission solutions.

While cyber funding and valuations may not hit the levels seen last year鈥攁nd many VCs hope they do not鈥攖hese few companies show startups can still strike gold if the market is right.

Check back for the last part in our series, which features high-valuation startups in the e-commerce sector.

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Health care has not been immune to the recent economic downturn.听

Startups that filed for initial public offerings at an accelerated pace during the pandemic saw their valuations take a nosedive in recent months. Late-stage companies are either holding off on fundraising (lest they lose pandemic-era valuations) or looking for creative ways to extend funding rounds.听

However, per SA国际传媒 data, a handful of late-stage health care startups have managed to increase their valuations by more than 100% since 2022鈥檚 second quarter. These startups represent promising niches in the sector involving clinical research, electronic health records and smart devices.

Overhauling clinical trials

Clinical trial platform raised $220 million in late April, following a Series C round of $220 million in August 2021. The company鈥檚 valuation jumped by 118% to $4.8 billion.

Clinical trials, the long and arduous process of testing medical products for safety and efficacy, got a massive makeover in 2020. They have long suffered diversity problems for decades that made it difficult for people of color, lower-income individuals or those with mobility barriers to access testing sites. This in turn made it difficult to truly understand how safe new drugs are for different sectors of the population.听

These problems exacerbated during the pandemic when testing sites were hard to access due to strict quarantining guidelines. In March, the released new clinical trial guidance that .

Since then, clinical research startups experienced massive waves of investment. Venture funding spiked 111.7% in 2021 at over $2 billion, according to SA国际传媒 data. Companies such as introduced plug-and-play devices that made it possible to conduct clinical trials from a physician鈥檚 office instead of a testing site. Others, like , make it easier to find the right patients to participate in clinical trials. The Los Angeles-based company raised $21.5 million in January.

Removing bottlenecks from the clinical trial process may also translate into more money for pharmaceutical companies, and generics enter the market.听

Reducing friction in health care

Patient booking platform is part of an emerging class of EHR technology. EHR, which stands for electronic health records, aims to update antiquated administrative systems in hospitals and clinician offices.听

Lags in booking patients, billing insurance companies and sharing health records between a primary care physician and a specialist cause friction in doctors鈥� offices. This often leads to long patient wait times and physician burnout at a time of high demand for care.听

This class of companies raised $1.7 billion during the pandemic, per SA国际传媒 data. One startup, , raised $12.5 million in August to help doctors create patient notes that can automatically be billed to insurance companies.听

EHR technology that organizes patient data and relieves administrative burdens according to 75% of the physicians surveyed by . Productive doctor visits that lead to healthier patients also reduces the need for expensive, reactionary care.听

Data is king

About a year after raised $100 million in Series C funding, the company raised an undisclosed venture round with only three investors in April. The company鈥檚 valuation went from $800 million to $2.6 billion.

艑耻谤补, which makes a wearable smart ring that tracks biometric data and lifestyle patterns in activity and sleep, is part of a genre of wellness and fitness startups that made it big during the pandemic.听

The 艑耻谤补 valuation upstep could be a harbinger for a much more impactful trend.听

Wearables startups saw $1.7 billion in venture funding in 2021, but it聽 wasn鈥檛 driven purely by health and fitness fanatics. Wearables provide a trove of data and a better snapshot of one鈥檚 health than a regular checkup at a doctor鈥檚 office.听

At the height of the pandemic, when the number of beds at hospitals fell drastically short of demand, remote patient monitoring technology spiked.听

This kind of technology will have decades of impact as the U.S. braces for a public health crisis: Boomers, billed as the largest and longest-living aging population, is likely to usurp the vast majority of health care resources and will require technology to help them age in place.听

This hasn鈥檛 been lost on investors.

Check back for Part Four in our series, which features high-valuation startups in the cybersecurity sector.听

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Even in a downturn, transformational technologies and industries are created that affect society long after the economic tumult is put in the rearview mirror.

After the dot.com bust in 2001, search and B2C tech revolutionized the way we shop and use the internet. After 2008, social media and 4G helped usher in new ways to connect and communicate.

In the current market, investors seem to be betting heavily that blockchain, crypto and all things Web3 are the next big tech evolution of the next decade.

While funding for all things Web3 will likely not hit last year鈥檚 record high as both the venture market has limped along this year, more than a half-dozen startups in the space have still been able to capture large rounds that doubled their valuation鈥攐r more鈥攕ince the start of 2021.

Building Web3

Just like any industry, infrastructure needs to be built out before people can build all the shiny, new toys in the sandbox.

Palo Alto, California-based could play a big role in that infrastructure, and investors have taken note. Last month, the company closed a $150 million Series A led by and 鈥攎ore than doubling its valuation from a $200 million investment from , and FTX Ventures that valued the company at $1 billion just earlier in the year.

Interestly, just as Facebook鈥攏ow 鈥攅merged from the last downturn as a winner, it plays a role here. Aptos was founded by ex-Meta employees. The company is creating a Layer 1 system blockchain, meaning it will not sit on Ethereum or another network, but be its own decentralized network. However, its Meta roots are allowing it to build off of key elements of the Diem blockchain and its smart contract language鈥�.

While Aptos is a Layer 1 player, others are secondary blockchains built on top of that layer鈥攃alled Layer 2 blockchains. Israel-based is such a company, and it saw one of the biggest valuation jumps of any startup in the Web3 space in just six months.听

Last November, StarkWare raised $50 million from at a $2 billion valuation. However, Web3 talk was just heating up then and in May the company locked down a $100 million round led by and at an $8 billion valuation鈥攁 300% jump.

Securing the chain

Another area that has caught the eye of investors are platforms that help analyze and secure that blockchain data, including crypto transactions.

Los Angeles-based offers a secure and scalable node management platform to build blockchain projects. Less than a year ago, the 2 led a $155 million round in the company, minting it as a unicorn. However, in January鈥攂efore the slowdown in venture really hit鈥攂oth and Tiger Global decided to more than double that valuation to $3.3 billion with a fresh $207 million round.听

On the opposite side of the U.S, New York-based 鈥攚hich detects fraud and gives analyses of blockchain data and crypto transactions to governments, banks and businesses鈥�raised a new $170 million Series F at an $8.6 billion valuation. The round more than doubles Chainalysis鈥� valuation from its $100 million Series E led by Coatue that gave it a $4.2 billion valuation last June. That round itself more than doubled the company鈥檚 value from just three months earlier, in March 2021, when it closed a $100 million Series D at a $2 billion value.

Another New York-based Web3 and blockchain security-focused startup saw a similar valuation jump earlier this year. 鈥檚 platform analyzes and monitors blockchain protocols and decentralized finance projects. The startup saw its valuations jump more than 120% from last December after raising a $88 million Series B extension led by and that turned CertiK into a $2 billion unicorn.听

CertiK actually was not yet done with its Series B, as it raised another $60 million investment from SoftBank Vision Fund 2 and Tiger Global the following month.

Paying up for crypto

Sure, crypto has had a rocky 10 months. That is undeniable. However, that doesn鈥檛 mean it has been bumpy for all startups in the space.

Earlier this summer, San Francisco-based showed the resilience of the crypto industry by raising a $150 million Series D led by and , and values the company at $8 billion. Just 10 months earlier, the company鈥攚hich allows institutions to access and manage their crypto assets鈥攃losed a $210 million Series C at a $3.75 billion valuation.

However, investor excitement for crypto was not limited to just U.S. startups. India-based , a crypto investing app and exchange aggregator, was minted as a unicorn just a year ago after raising a $90 million round. The startup topped that in April, when it closed a $135 million round led by and 鈥攄oubling that valuation to $2.2 billion.

In a venture market dominated with the talk of down rounds and pullbacks, more than a few Web3 startups seem to have sold investors on the idea that the next generation of the internet is now.

To see more of our Web3 coverage, visit SA国际传媒鈥檚 Web3 Tracker鈥攁 new site to look at startups, investors and funding news concerning all aspects of Web3, cryptocurrencies and blockchain.

Check back for Part Three in our series, which features high-valuation startups in the health care sector.

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The troubled IPOs from and (fresh record lows set yesterday), (off over 10 percent yesterday) and (off over 40 percent from its IPO price) have the broader media world perking up and asking questions. What’s going on?

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As and written lately, it seems that some recent technology-focused and venture-backed public debuts have been mispriced for one or two of a few reasons. These include slowing growth not being fully-factored into pricing (Uber), persistent or rising unprofitability (Uber, Lyft, SmileDirectClub, Peloton), and valuations set too high either while private (Uber), or going public at companies with gross margins far lower than what software companies earn.

The final point is something we covered yesterday. Namely that statups who earn revenue which generates lower gross margins than software companies are seeing public investors value them lower than some private investors anticipated. This, , should not be a surprise.

Software companies generate revenue which has attractive gross margins and often recurs. It’s coveted by private and public investors alike, each class of moneypeople being willing to allow software companies to lose money while they accrete more top line.

High margin, recurring software revenue is a revenue gold-standard of sorts. It regularly garners high valuation multiples. That makes it a good measuring stick. For example, if a company that generates non-recurring revenue with gross margins of, say, 50 percent, is valued like a software company, we can say that it’s likely overvalued.

But what if our measuring stick is broken? Yesterday we mapped the compressing revenue multiple of Peloton in the following way:

Shares in Peloton, a recent IPO, fell over 10 percent today to $22.51 per share. Peloton鈥檚 IPO price聽was $29 per share, valuing the firm at $8.1 billion. Today it鈥檚 worth $6.25 billion. At its IPO price, Peloton was trading for 8.8x trailing revenues (its fiscal year ended June 30, 2019). Today that same revenue multiple compressed to 6.8x.

We noted that Peloton is still worth more on a revenue-multiple basis than what old-school venture capitalists thought SaaS companies should be worth, also on a revenue-multiple basis.

That means that the revenue multiple gains enjoyed by SaaS companies could be expanding the window for companies with lesser-quality, allowing them to inflate their valuations; if something is worth a bit less than SaaS, say, but SaaS valuations double, what happens to the inherently less valuable company?

Provided that it can claim to be tech-ish, or tech-adjacent, or heading-towards-tech, perhaps it can get a higher multiple from private investors than it really deserves. Public investors make that decision far down the road, leading at times to unwelcome surprises.

Watching reprice on the public markets, watching private market dreams run into public market realities, and watching gross margin ambiguous companies continue to raise huge sums, I reckon that no one knows what things are worth right now. The market is too uncertain, the expansion too long, the private capital too free, and interest rates still too low. Not in a moral sense, mind, but in terms of where we are today compared to historical norms.

And so we’re seeing valuations try to sort themselves out on a relative basis but from no zero point. SaaS is a good high watermark, but if it’s inflated itself, how can we tell what anything else is worth?

滨濒濒耻蝉迟谤补迟颈辞苍:听

A few weeks back the SA国际传媒 News team published a raft of information regarding the global and U.S. venture capital markets, along with dives into popular markets like Texas domestically, China globally, and more. One data point that we don’t track, however, is the percentage of ‘up rounds’ versus ‘down rounds’ in the period.

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In English, that means we don’t keep tabs on how many startups out of 100 who raise more capital do so at a higher valuation (price increase) or lower valuation (price decrease). It’s useful data. And so, when a new report dropped including the information we took note. Let’s explore.

Up Rounds

The Q2 (a that works with startups) venture capital survey writes that in the second quarter, “[u]p rounds exceeded down rounds 86% to 6%, with 8% flat in Q2 2019, an increase from Q1 2019 when up rounds exceeded down rounds 81% to 11%, with 8% flat.” I imagined that the preceding 81 percent rate was high; to see it rise to 86 percent one quarter later in the same year was eye-opening.

Luckily for us, Fenwick et al graphed their findings. Observe:

The chart shows us that not only was the Q1 81 percent up-round percentage tied for the local maximum, Q2’s 86 percent is the highest result in years. (An extended version of the same chart shows that the Q2 2019 up-round percentage is roughly tied for the all-time high set in early 2015.)

In contrast, while up rounds reached their recent zenith, down rounds slipped to their smallest portion of new capital events. Indeed, while up rounds reached their highest known percentage, down rounds managed to dip under flat rounds.

This may be all a bit more grokkable if we turn to probabilities. Here’s how it shakes out: If a company raised in the second quarter of 2019, it had about a 1 in 16 chance of raising at a lower price, about a 1 in 13 chance of raising at a flat valuation, and a about a 1 in 1.16 chance of raising at a higher price. Those are good odds!

Not All Good News

The whole Fenwick document is worth reading () because you should imbibe the full context of the above information. That setting includes some weak points worth noting while we’re here highlighting yet another bullish indicator.

Chief among which is a modest dip in the pace at which companies raising their Series D can boost their valuation, and a slightly sharper drop in “Series E and higher” up valuation increases. What that means is that the amount that companies raising a Series D, Series E, or later round can expand their value in between rounds is falling.

Not much, mind; the amount that Series D rounds repriced companies聽up was still 89 percent after its decline. That’s not bad. But “Series E and later” price changes fell more sharply to a mere 39 percent gain.

This hints at a few things. Perhaps as startups reach deeper into the private markets, IPO prospects (ie the impact of public pricing on private valuations) is kicking in a bit more sharply, slowing private-market value accretion at late-stage startups. Or it could be that worry concerning the number of unicorns that will make it to a public offering before a correction is slowing super late-stage valuation growth.

You can fill in your own guess. What matters as a takeaway is that while early, and mid-stage startup valuations (Series B and C, say) are looking strong, things are weaker towards the end of the private capital game.

The Vision Fund 2 cometh, but perhaps not soon enough to reprice everyone at once. So, if you are looking for some big, late-stage checks, mind your expectations. For the rest of the startup world, the chances of raising at a nice premium from your last private round look good.

And those odds look the best for software-focused startup companies. Why? Because of all the categories of startups that Fenwick examined, the sharpest valuation increases were given, on average, to software firms. Once again, why? I’d reckon because as the public market rains favor on similar companies, venture capitalists can’t help but pay a little more for their smaller, private relatives.

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