November 10, 2023
State of Fundraising for Early-Stage Startups in 2023
An update for early-stage (post-seed) startups:
For those of you currently focusing on after-seed rounds fundraising in the US, it's crucial to keep in mind the changes in the landscape of venture capital valuations in 2023. The current median deal size has settled at $5.0 million, paired with a median pre-money valuation of $40.0 million, while the rate of value creation between the rounds has decreased to a decade low of 35%. This marks a noticeable downturn from the higher figures of recent years, signaling a continuing shift towards a much more conservative investment approach.
The current data shows that there's been a greater variance in deal sizes compared to valuations, likely a result of many startups opting for extension and bridge rounds in 2023. This strategic pivot may well be in response to the challenging prospect of meeting the financial-performance expectations of investors in new funding rounds. If your company belongs to that category, be realistic in your conversations with investors. Despite a year of relatively static median pre-money valuations, the investment climate has tilted in favor of investors. This is leading to a tightening of negotiations, particularly when it comes to pushing valuations upwards.
Another interesting observation for early-stage founders is the narrowing gap between seed and early-stage valuations, which has resulted in less value creation between funding stages. This trend is highlighted by the median early-stage relative velocity of value creation (RVVC) figure, which has dipped to near-decade lows, from around 127% in 2022 to about 35% in 2023. Simply put, the growth in startup valuations from one funding round to the next is not as rapid now as it has been in previous years. Such value creation, nonetheless, is pivotal for advancing through successive fundraising cycles, and a dip in valuation can be a red flag to investors, warranting a more conservative approach.
In response, many early-stage founders are wisely spacing out their financing rounds to allow more time for growth, aiming to secure valuations that will entice new investors. Many of them, I suspect, simply do not have any other options when it comes to fundraising in the current environment.

The market has become increasingly selective, with the bottom-quartile valuation for early-stage companies climbing to a record high of nearly $24 million. This serves as a testament to the heightened criteria for investment and underscores the importance of strategic capital deployment by venture capitalists to achieve their desired return goals.
For those of you leading higher-quality startups and considering a return to the market, be prepared to negotiate equity stakes carefully. The median share acquired has reached an 11-quarter high at 24.0% for early-stage companies. This is a clear indication that the market is moving away from the more founder-friendly terms of the past.

In summary, for early-stage entrepreneurs, it is critical to navigate this new terrain with a clear strategy. Be prepared to demonstrate substantial growth and to potentially offer a larger equity stake in your company to secure the funding necessary for your next phase of expansion. Alternatively, try to survive and push your sales more aggressively :)