This year has been a giant reset for all stages of the startup ecosystem. Founders, venture capitalists, employees and investment bankers all made hay while the sun shined in 2020 and 2021. But valuations have come crashing back to earth in 2022.
This article takes a look at what the VC market looks like post-crash. Because this trend didn’t start in 2020. Over the past 5 years, median valuations for early stage companies tripled from ~$20m to $60m. That has now come back to earth.
But there is an interesting wrinkle in this story. And one that is worth paying attention to. The speed of the crash has meant that there is still plenty of money on the sidelines, Pitchbook estimate about $290 billion. This is money that has been raised by venture capital funds and that must be invested as part of the VC fund’s mandate.
So it’s not like there isn’t money out there. It is just being invested by a group of nervous venture capitalists that have seen the valuations of their portfolio companies slashed by 50% or more in the past 12 months. But in the coming months and years, that $290 billion will need to be deployed. There will be amazing companies that emerge out of this period (similar to Airbnb and Uber in the post-GFC period).
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