Key Takeaways
- • Series C and D valuations have declined by 50% or more from their 2021-2022 peaks, while Series A and B valuations show smaller declines, demonstrating a clear three-to-four quarter lag in valuation compression across the capital stack following the 2022 tech market reset.
- • Seed-stage valuations remain resilient and are still rising despite broader market headwinds, suggesting the valuation correction may not have fully penetrated early-stage funding rounds, though this pattern may peak within the next three to four quarters based on observed lag patterns.
- • The re-emergence of "post-seed" funding rounds in the Midwest market indicates a structural shift in early-stage financing, with companies no longer advancing directly from seed to Series A as they did during the 2021-2022 boom, suggesting a more disciplined staged approach to capital deployment.
- • Midwest seed valuations have declined approximately 25% from their highs, providing regional data points that differ from national trends and suggesting geographic variation in valuation correction dynamics.
- • The lag pattern observed between late-stage and mid-stage valuation peaks raises questions about whether similar timing will apply to seed valuations, though the economic basis for this assumption remains unclear without additional supporting data.
Summary
The primary debate among venture investors, limited partners, and entrepreneurs in early 2023 centers on whether the valuation declines that characterized the 2022 tech market reset have fully cascaded through all stages of the capital stack. While widely reported metrics show deal counts and round sizes are substantially down from 2021-2022 peaks—particularly at later stages—comprehensive valuation analysis has been sparse until now.
Analysis of Pitchbook data reveals a pronounced differential in valuation compression across funding stages. Series C and D valuations have contracted by more than 50% from their maximum valuations, representing the most severe correction. Series A and B valuations have declined but to a materially lesser degree. Most notably, seed-stage valuations continue to rise, suggesting that valuation pressure has not yet reached the earliest funding rounds. Indexing each funding series to its historical maximum reveals a critical timing pattern: a consistent three-to-four quarter lag exists between when late-stage (C/D) valuations peaked and when mid-stage (A/B) valuations peaked.
This lag structure presents both a descriptive observation and a forward-looking question. If the same timing pattern holds, seed valuations—which currently remain resilient—may approach their peak approximately three to four quarters past the A/B valuation peak. The timing suggests seed compression may be imminent, though the economic mechanism driving such a predictable lag remains uncertain.
Regional data from the Midwest market provides supplementary evidence of early-stage softening. Seed valuations in that market have declined approximately 25% from highs, and investors are observing a structural shift: the re-emergence of "post-seed" funding rounds after a multi-year period in which companies with any operational progress advanced directly from seed to Series A. This staged approach suggests a return to more conservative capital discipline. However, the post-seed category is not systematically tracked in major databases like Pitchbook, potentially obscuring whether apparent seed valuation resilience masks underlying compression when properly categorized.
Analysis of Pitchbook data reveals a pronounced differential in valuation compression across funding stages. Series C and D valuations have contracted by more than 50% from their maximum valuations, representing the most severe correction. Series A and B valuations have declined but to a materially lesser degree. Most notably, seed-stage valuations continue to rise, suggesting that valuation pressure has not yet reached the earliest funding rounds. Indexing each funding series to its historical maximum reveals a critical timing pattern: a consistent three-to-four quarter lag exists between when late-stage (C/D) valuations peaked and when mid-stage (A/B) valuations peaked.
This lag structure presents both a descriptive observation and a forward-looking question. If the same timing pattern holds, seed valuations—which currently remain resilient—may approach their peak approximately three to four quarters past the A/B valuation peak. The timing suggests seed compression may be imminent, though the economic mechanism driving such a predictable lag remains uncertain.
Regional data from the Midwest market provides supplementary evidence of early-stage softening. Seed valuations in that market have declined approximately 25% from highs, and investors are observing a structural shift: the re-emergence of "post-seed" funding rounds after a multi-year period in which companies with any operational progress advanced directly from seed to Series A. This staged approach suggests a return to more conservative capital discipline. However, the post-seed category is not systematically tracked in major databases like Pitchbook, potentially obscuring whether apparent seed valuation resilience masks underlying compression when properly categorized.
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