I’m confident everyone reading this has, at some point, been on a date.
And you know how you can have dinner, kiss on a street corner—and then the other person doesn’t call for three months? Or when an ex reaches out after an acrimonious breakup? In girl talk terms, this is a mixed signal. And I feel like the venture market is giving us all mixed signals.
PitchBook just released its quarterly U.S. Valuations Report, and its data isn’t surprising—but it is cryptic. Flat and down rounds hit a decade high, while median late-stage valuations (this year to date) are surpassing the 2021 bull market.
The venture market has been bifurcated for some time now of course, as AI soars while other sectors slump. And, as we’ve previously reported, VCs themselves increasingly exist in a world of haves and have-nots—many large, well-established firms have succeeded in raising new funds, but newer managers have struggled. It’s not that the market’s bad, it’s just also not good.
“I do think there is still quite a bit of shakeout that needs to happen,” said PitchBook analyst Kyle Stanford via email. “Especially the longer that exit opportunities fail to evolve, there are many companies and firms that will need to make tough decisions, and in some cases cut their losses. We know that revenue multiples for valuations are much lower. We know that growth has probably slowed for many companies…The market is being very cautious at the moment. The uncertainty around exits hasn’t boosted venture, that’s for sure.”
And as the exit market remains stalled like an engine, startups are in a tough spot, which is showing up in the data. Almost 29% of deals in Q2 were flat or down rounds, the decade-high, the report says. That breaks down to 15.7% of rounds are down and 12.7% are flat, year-to-date. A down round or a flat round is far from death, but I have yet to meet a VC who’s enthusiastic about their portfolio company’s valuation getting slashed or frozen. (Although some investors seeking bargains may rejoice.)
“It's the highest figure since the financial crisis,” said Stanford via email. “You can spin that into a doom and gloom narrative on the market, but it’s a very natural problem when valuations balloon and the market corrects.”
I’ll put that in the category of “rough, but it makes sense enough,” or, if I’m Carrie Bradshaw-ing it, a mixed signal. But there’s another number in the report that further complicates the picture: So far in 2024, the median late-stage valuation is $68.6 million, which is higher than the $67 million median we saw in the heat of the 2021 boom, according to PitchBook data.
It’s a more chipper figure, with a nuanced explanation: Companies that raised in 2021 and 2022 are now coming back to market, and fundraising has been taking demonstrably longer. The median time between rounds has been ticking up—for example, late-stage companies are taking a median of 1.8 years between VC-led rounds right now. That “puts companies raising now directly in that high-valuation, high-multiple window,” says Stanford.
But we don’t exactly have all the information, either, since “unpriced rounds are keeping the valuation dataset smaller than we saw a couple years ago,” said Stanford. A mixed signal, I’d argue.
One place with few mixed signals is AI, where things are still gung-ho. In Q2, AI attracted almost half of total deal value in the U.S. and, among unicorn-minting deals, 42% were AI, per PitchBook. That seems like a pretty unambiguous, positive signal. But who knows, I keep hearing AI disillusionment is right around the corner.
Though much like a recession, disillusionment is always right around the corner, with lots of people trying to call it. It’s kind of like a leaking faucet that can still fill a glass if you stand at the sink long enough.
And it’s definitely like a mixed signal. Because, if you’ve ever been on a date that became a question mark (or watched HBO’s Sex and the City), you know: Sooner or later, there’s clarity.
See you tomorrow,
Allie Garfinkle
Twitter: @agarfinks
Email: alexandra.garfinkle@fortune.com
Submit a deal for the Term Sheet newsletter here.
Nina Ajemian curated the deals section of today’s newsletter.
