State of Private Markets, Q3 2023 | Carta
The downturn that has defined the venture capital industry for much of the past two years continued in the third quarter of 2023.
Peter Walker
In Carta's latest blog post, we're given a bird's-eye view of the private markets' landscape as of Q3 2023, and it's quite the mixed bag. Here's a nuanced summary that captures the essence of their findings:
Key Takeaways:
- The venture capital scene has hit a rough patch. There's been a noticeable 38% dip in the capital startups have managed to raise compared to Q2, and the number of fundraising rounds has also taken a 27% hit.
- In an interesting twist, despite the general downturn, the median pre-money valuations in venture deals have actually seen an uptick at almost every stage. This means founders are managing to secure better valuations and consequently, part with less equity.
- Terms that typically sweeten the deal for investors, like liquidation preferences and cumulative dividends, are seeing less action, suggesting a shift towards founder-friendly dynamics.
Market Dynamics:
- Seed and Series A stages are witnessing a valuation surge, with Series A reaching a notable high of $40 million.
- Companies are taking longer strides between funding rounds, signaling a need to stretch their existing capital further.
- Stability seems to be the theme when it comes to 409A valuations, with more than half of the companies maintaining their previous valuations – a steadiness we haven't seen since 2018.
Regional Shifts:
- Massachusetts has edged out New York, securing 11.7% of the venture capital pie in Q3.
- California continues to lead the pack, boasting 46.2% of all venture dollars raised.
Stage-Specific Insights:
- Series A rounds have felt the chill with a 34% decline from Q2, pointing to a challenging environment for startups ready to scale.
- The later stages (Series D and beyond) aren't immune to the trend, with both deal count and capital raised showing a downward trajectory, mirroring the cooling IPO market.
Valuations and Capital Raising:
- Despite fewer deals, early-stage startups are fetching higher median pre-money valuations, indicating a market that still values promising ventures.
- Series C valuations have recalibrated, suggesting a market correction is at play, rather than a fleeting setback.
Equity and Talent Trends:
- The rate at which employees are cashing in their vested stock options has hit a new low of 24%, continuing a downward trend.
- On a brighter note, companies are extending the post-termination exercise periods for stock options and are more frequently repricing options to retain their appeal.
Market Resilience:
- The M&A scene for startups has shown remarkable resilience, with only a slight 5% decrease in activity, standing as a beacon of stability in an otherwise volatile venture landscape.
Carta wraps up with a nod to their methodology, reminding us that the insights are drawn from a robust, anonymized sample of their customer data as of October 24, 2023.
Remember, this is a snapshot of a moment in time, and as with all things in the venture world, the only constant is change.