Not Just Uber and Airbnb: Early-Stage Valuations Rising Too

Not Just Uber and Airbnb: Early-Stage Valuations Rising Too

High-priced later-stage deals for companies such as Uber Technologies and Airbnb aredriving up venture capital valuations, but earlier rounds are seeing the effects as well.

A new report from data provider Pitchbook Data says that the median pre-money valuation of Series A rounds globally in the first half of this year was nearly $12 million, a $2 million increase from last year’s median.

Series B rounds, which often come when a company is driving its product to market, saw an even bigger jump. The median valuation rose 36% in the first half compared to 2013, to $35.2 million.

Even seed rounds were affected, with the median valuation growing to $5.9 million, a 23% increase from last year and far higher than the $3.2 median in 2010. But, as Pitchbook notes, seed-stage investing has become more institutionalized, which has tended to make such financings larger and more like Series A rounds prior to the latest wave of investor enthusiasm.

At the upper end of the spectrum, the median valuation for Series D and later rounds rose 63% over 2013, to $171.5 million. The median size of these rounds climbed as well, from $17.5 million last year to $30.1 million in the first half of 2014.

High valuations are riskier for investors and companies because they increase pressure to meet performance expectations to ensure that the next financing is done at a higher price. Venture-backed companies worldwide are meeting such expectations for the most part, with up rounds accounting for 65% of all financings in the second quarter of this year, Pitchbook said. Down rounds accounted for 15% of the financings and the rest were done at the same valuation as the prior deal.

The silver lining in the valuation story for founders is that they can raise the money they need through sales of smaller stakes.

The median stake sold in a Series A financing in the first half of this year was 27.7%, significantly less than the 33% that used to be the standard prior to 2010, Pitchbook said.

This benefit carried to late-stage rounds as well, with investors in Series D and later financings acquiring a median 12% ownership, down from 16.3% in 2010.

Write to Russ Garland at Follow him on Twitter at@RussGarland

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