Startup Valuations Have Recovered From Summer Lows

As 2020 comes to a close, some parts of the startup world are completing a loop, ending the year where they began. Startup valuations, for example, as seen in the Silicon Valley area, are effectively back to where they were at the start of the year.

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A Positive Trend

According to a report from Fenwick & West examining data through October in the San Francisco Bay area, the percentage of startups that raised up rounds (rounds priced higher than preceding investments) came within spitting distance of its pre-COVID levels. This is a positive sign for startup bulls.

Up-Rounds on the Rise

Median and average price increases for startup valuations in the Valley have both crested their 2019 averages. The gains have proven especially sharp amongst software startups, which managed somewhat epic valuation gains in October; Fenwick’s data, something we’ve covered before on The Exchange, lags the calendar month somewhat.

Up-Rounds by the Numbers

In October, Silicon Valley startup investments that were priced up from their preceding deal rose to 79%.
Down rounds fell to just 4% of all Silicon Valley venture rounds in October.
Up-rounds are at their post-February high as down rounds set what is at least a 12-month low.

Software Startups Lead the Charge

Those up rounds are driving huge valuation gains. October was the first month since the start of the pandemic in which the average and median price increases amongst Silicon Valley startups bested their 2019 levels.

In October, an average startup valuation gain of 101% was above 2019’s 93% result.
On a median basis, October brought the area’s startups a 73% gain, better than 2019’s 60% result.
Software startups saw an average valuation gain of 140% in October, with a median gain of 83%.

Some Troubling Signs

While things are good, not all data from the report is positive. Series A round volume in Silicon Valley fell to their year-low, internet and new media startups saw their valuation gains came in under 2019 levels in October, and Series C valuation gains have underperformed all year, managing just 50% and 65% average gains in September and October.

Conclusion

The public market changes we’ve discussed ad nauseum this year are showing up in private data. And the changes to the venture capital market — the faster rounds at higher prices — appear real, albeit from a particular geographic slice of the broader startup market.

Of course, we’ll get November and December data in time, but given how things have felt since October, I have a suspicion that we’ll see similarly strong results from those future reports. 2020 is ending better than we might have hoped.