Cash Is Drying Up in the Late-Stage VC Market

Companies seeking Series C and D round funding are likely to experience a down round in the second half of 2023, according to PitchBook.


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The second half of the year is looking bleak for companies backed by venture capital firms, especially for those at later stages.

The companies that are most starved for capital are those that are currently in Series C and D round fundraising. These are most likely to raise at lower valuations compared to their previous funding rounds, according to PitchBook’s latest VC outlook. For such companies, which are defined as late-stage companies by PitchBook, the current demand for capital exceeds the available supply by approximately 2.8 times. In the second quarter, 12.3 percent of late-stage companies that raised funds experienced a down round, up from 8.5 percent in the first quarter.

The fundraising landscape also appears challenging for companies at Series E or later, known as the venture-growth stage. These companies face a demand for capital that exceeds the available supply by 1.3 times. In the second quarter, 34.3 percent of companies in the venture growth stage experienced a down round, up from 31.9 percent in the previous quarter.

“Venture-growth companies, which missed their IPO window in 2020 and 2021 and likely raised funds at soaring valuations, found themselves particularly exposed to the market downturn,” according to the report. “Their failure to initiate an IPO could signify a lack of the fundamental strength necessary to attract public markets.”

PitchBook estimates that deal value for venture-growth companies will fall below $50 billion in the U.S. this year. In both 2021 and 2022, deal value for venture-growth companies surpassed the $50 billion threshold. “While this hurdle miss might seem unimportant, there have never been more companies in need of venture-growth or pre-IPO capital,” the report said. “There are now more than 2,000 venture-growth companies. Outright failure of venture-growth companies is an uncommon event, but for those companies that may need to accept a low exit value because of current conditions and the lack of venture-growth capital, it may feel like one.”

Things look a lot better for companies at the seed stage. According to PitchBook, the median valuation of seed-stage companies reached a record high of $12.9 million in the first quarter. The robust valuation of seed-stage companies is due in part to the rising interest in early-stage deals from nontraditional investors, including hedge funds, corporate venture capital funds, and mutual funds.


“Not only has the more formulaic nature of dealmaking at the seed stage prevented the valuation compressions seen in later stages, but the elevated participation of corporate VCs and larger investors at this stage has helped boost deal metrics,” the report said. It added that the deals sizes of seed-stage companies have been climbing past the broader market’s median as the larger investors put their dry powder to work.