Industry Analysis - July 13, 2022

Is the Startup Valuation Bubble Popping?

One of the most important metrics startup investors should pay attention to is valuation. Valuation (in combination with share price) will determine how much equity you receive. And that has a direct relationship to your potential returns in the future.

In 2021, startup valuations went through the roof as venture capital (VC) investments increased by almost 100%. Economic stimulus and confidence in the broader markets fueled this VC activity. But what’s true in the VC world isn’t always true in online startup investing. Last week we looked at how total dollars invested changed from early 2021 to early 2022. Today, we’re turning to valuation.

In the first half of 2021, the average valuation of early stage startups ranged from $10 million to $12.3 million. We’ve seen only a minor increase in 2022, with early stage valuations staying between $11.9 million and $13.9 million. 

Growth stage startups are another story. 

Average growth stage valuations were nearly 200% higher in June 2021 from where they began in January 2021. They ranged from $27.6 million (February 2021) to as high as $91.4 million (May 2021). And 2022 has seen an overall increase, with growth stage valuations peaking at $239.5 million in April 2022. However, average valuations have decreased recently, falling to $60 million in June. That’s a drop of more than 35% from the beginning of the year.

There could be a few factors influencing this decline. Because growth stage startups are more mature than their early counterparts, they are more likely to be impacted by broader market movements. VC investing is also slowing down across the board. In the public markets, the S&P 500 is down 20% from its January open, and total IPOs are down nearly 80% from last year. Growth stage startups often seek investments from both VC and retail investors. With VC funds drying up, startups are have to stay competitive in order to win investments. Lowering valuations is an easy – and attractive – way to stand out. And that’s good news for retail investors!

Note: All data on online startup investing used for the Chart of the Week comes from the KingsCrowd database and represents a snapshot of the crowdfunding market.

About: Yasmin Sharbaf

Yasmin is passionate about the intersection of business, art, and science. Prior to KingsCrowd, Yasmin worked on a cryptocurrency investing research project for Wellesley College Investment Office where she assessed the risks and rewards for university endowment investment into cryptocurrency. She has also previously worked in a neuroscience lab studying language and memory of songbirds. Yasmin’s dream is to make investing and financial education accessible to everyone. In her free time, Yasmin enjoys going on adventures, learning new languages, and exploring different cultures. Yasmin studied Neuroscience and Studio Art at Wellesley College.

View more articles by Yasmin

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