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Venture Capitalists Expected Bargains. They’re Still Waiting.

Valuations are as high as ever — but plenty of start-ups haven’t raised new rounds yet.

Companies backed by venture capital have so far held out against the effects of Covid-19, according to data from PitchBook.

“Many early-stage VCs have been anticipating a drop valuations for many red-hot early-stage companies,” the data firm said in a mid-year report on U.S. valuations. “However, this decline has yet to materialize in the data.”

Prices instead grew on average during the first half of 2020, with the median valuation increasing to $30 million.

Angel and seed-stage investments exhibited the same trend on average, while median valuations for these companies stayed at about the same. According to PitchBook, median angel and seed-stage valuations were $6.5 million and $7.5 million, respectively, during the first half of 2020 — only about $100,000 below 2019 levels.

“While macroeconomic headwinds and the Covid-19 pandemic have battered the public markets, angel and seed-stage valuations have been largely insulated from volatility given how upstream in the venture lifecycle these deals typically are,” PitchBook said in the report.

But late-stage deals haven’t devalued either — in fact, quite the opposite. According to PitchBook, the median price for late-stage companies rose to $110.6 million in the second quarter, while the average valuation surged to $728.3 million — double that of 2019. The data firm’s analysts attributed this sharp jump to a “surplus of VC mega-deals” in the second quarter, as well as large amounts of capital that VC firms accumulated.

[II Deep Dive: Venture Capital Is Faring Better Than Other Parts of the Economy]

Where company prices have taken a hit is in the IPO market, with the value of initial public offerings falling sharply in the first half. However, PitchBook’s analysts described the drop-off as a “revert to the mean” following last year’s spike in IPO activity.

“We expected this serious decline in the valuations of IPOs in the first half of 2020, especially compared to 2019’s record-breaking volume of IPOs,” they said in the report.

Still, the analysts warned that the “pandemic’s full downstream effects may have yet to play out in the data.” In early-stage venture capital, for example, the median time between financing rounds is 1.2 years, meaning that many companies have not raised new capital since the start of the pandemic. Those that have are likely the “strongest companies,” according to PitchBook.

“VCs are consolidating their investment in the most promising companies, which naturally have higher valuations,” the report stated. “If the disruption caused by Covid-19 continues unabated for a few more quarters, many early-stage companies will be pressured to return to market under less favorable conditions, pressuring them to raise capital at lower valuations than previously enjoyed.”

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