U.S. startup valuations contract as early-stage investors grow cautious

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US startups seeking seed funding saw their valuations drop in the second quarter as nervous venture capitalists urged founders to make more concessions.

The loose fiscal policies and stimulus measures that led to an investment frenzy last year and sky-high startup valuations are now fading, making investors more cautious.

In the quarter ended June 30, the median pre-cash valuation for seed funding rounds was $52 million, down 16% from the first quarter, according to a PitchBook report Thursday. .

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Pre-money valuation refers to the value of a company before it raises new capital from an outside investor.

The data offers further evidence of a rout in public markets that is beginning to weigh on sentiment in private markets. Economic conditions hostile to an IPO have forced companies to opt for private financing, where justifying high valuations has become more difficult.

An inflationary environment and economic uncertainty has also led to several “down rounds”, where companies raise funds at a lower valuation than in a previous funding round.

In the United States, 81 companies have completed a down round, according to PitchBook. The effects of monetary policy tightening have also been felt globally, with Swedish fintech Klarna recently raising capital at a valuation 80% below its previous cycle.

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“Venture managers are looking for low or sweet prices in order to hit their multiple targets, which may take longer since the slowdown in the IPO market,” said Michael Ashley Schulman, chief investment officer at Running. Capital Point.

High valuations are unlikely to recover much in 2022, Schulman added.

On Wednesday, weaker-than-expected inflation data raised bets that the Federal Reserve would slow the pace of its aggressive rate hikes. Some analysts, however, warned that the central bank would seek stronger evidence that inflation is slowing.

(Reporting by Niket Nishant and Mehnaz Yasmin in Bengaluru; Editing by Shinjini Ganguli)

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