Why are seed deals still so expensive?
The global venture capital market has contracted steadily over the past year, but seed valuations have not, avoiding the massive cuts to round size and median valuations that later startup investment stages have suffered. And according to Accel’s Philippe Botteri, it appears there’s a simple answer as to why seed deals are holding up so well: rapid growth.
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The seed market is a bit weird right now. On one hand, PitchBook reports that at a total of $3.2 billion in the third quarter, pre-seed and seed deals in the U.S. have “fallen to pre-pandemic levels.” So yes, while we’re seeing seed deals decline in number and value in key markets, the data looks very different when you slice it on a per-deal basis.
CB Insights reported that the median early-stage deal was worth $2.2 million through the third quarter. That’s tied with 2021’s record for the global market. In the U.S., PitchBook data indicates that median valuations at the seed stage are ticking higher yet again this year, coming in at $12 million through the third quarter, up from last year’s record of $11.1 million.
Other datasets also point to expensive seed deals. Carta data indicates that the median pre-money valuation for seed deals on its platform peaked at $15 million in mid-2022, rising from around $9 million in 2020. That figure dipped to $13 million in Q1 2023 but recovered to $14.4 million by the third quarter.
If the venture market is contracting and overall seed investment volume is declining, the fact that seed deals are seemingly priced at or around all-time highs seems to conflict with what we’re seeing elsewhere in startup land. Late-stage deals, for example, are becoming rarer and smaller and cheaper today.
Solving the seed paradox
To understand why seed-stage valuations are holding on to their peak-era valuations better than other stages, we have to talk about more mature companies.