The European VC Valuations Report for Q2 2023, released on 15 August 2023, emphasises the profound impact of tightened monetary policies on VC exits. This shift resulted in a decline in their valuations from the previous year, as noted by Navina Rajan and Nicolas Moura, EMEA private capital analysts at Pitchbook. The evolving landscape has prompted a distinct pivot, with businesses increasingly favouring acquisitions, sidelining traditional public listings.
Angel and seed resilience
While the broader landscape seems challenging, there’s a silver lining in the form of angel and seed investments.
These early-stage rounds have showcased remarkable resilience amidst the market volatility. With median angel deal values in H1 2023 escalating by 28.8% from 2022 and median angel valuations experiencing a 10.2% uptick, the strength of these investments is evident.
Given their distance from public markets, angel and seed rounds managed to shield themselves effectively from widespread market fluctuations, thanks to their long-term investment horizons.
Early-stage VC: stable deal value amidst decreasing valuations
In H1 2023, the European VC scene saw early-stage deal values maintain stability, despite a dip in valuations.
While median pre-money valuations for this period trailed the 2022 figures, settling at €6.2m, the typical resilience of early-stage valuations faced challenges. A shift towards a more conservative stance in VC valuations has started influencing early-stage metrics as well.
Interestingly, even as the median for deal value remained largely consistent, the top decile presented a significant decline, indicating a market correction in the higher-end spectrum.
With the dealmaking environment persisting in its strained state, it’s becoming evident that few segments within the VC ecosystem will be unaffected, as Pitchbook’s recent analysis suggests.
Late-stage VC: market corrections amidst high-value deals
Late-stage VCs seem to be riding the same wave.
Median pre-money valuations for H1 2023 reflected a 13.0% drop from the previous year, coming in at €10.8m.
Deal values, however, remained unswayed.
The mature character of late-stage entities, which often benchmark their valuations against public indices, renders them vulnerable to prevailing equity market volatilities.
Yet, certain VC players defied these odds, locking in deals exceeding €100m in both Q1 and Q2. Dominating this landscape, the DACH region clinched six of the top 10 deals, spanning sectors from cleantech to fintech.
An underwhelming exit market
The exit market narrative for European VCs appears rather grim.
A tightened monetary policy, stringent due diligence, and a subdued public-listing ambiance have collectively suppressed VC exit valuations.
A closer look at the 2022 data reveals that out of 38 VC-backed businesses that opted for an IPO exit, a mere 13 observed a positive share price trajectory post their public listing. By July 2023, the median return for these IPOs plummeted to -30.6%.
This discouraging trend has persuaded numerous VCs and founders to stick within the VC framework. While many are sidelining public listings, acquisitions are emerging as the popular exit strategy. However, even these exits are not exempt from the prevailing undervalued climate, echoing pre-2021 trends.
The shrinking disparity between the highest and lowest deciles--from €106.8m in 2022 to a mere €50.2m in H1 2023--further accentuates this valuation dip. This shift underscores the looming valuation challenges, hinting at elevated discount rates attributed to surging interest rates.
As reduced valuations cast shadows over exits, the European VC community remains on high alert, keenly awaiting signals of either revival or further downturns as 2023 progresses.