Pre-Seed Startup Valuation & Fundraising Trends
The stability of the median valuation at around $5 million across all four quarters of 2023 is the most remarkable finding of Q4, contrasting with the turbulence of the previous year and setting a real benchmark for pre-seed startups. However, the widening gap between the upper and lower quartiles suggests a growing disparity in valuations within this segment.
Factors that will be contributing to this trend:
1. Global Uncertainty: As we have noted in our analysis going back to before the pandemic, pre-seed fundraising has a significant correlation with a very broad sense of certainty and optimism. Since then, we’ve seen the impacts of lockdown, vaccines, inflation, and wars. 2023 was marked by a mixture of both growing ‘techno-optimism’, as well as an escalation of conflict and geopolitical tensions.
2. Sectoral Shifts: Changes in investor sentiment towards specific sectors or industries will obviously influence valuations in those areas. When those shifts are particularly significant, such as the extreme excitement about AI that has developed during 2023, it may even drain attention from other sectors. While AI does not appear to have moved the global median much, it does appear to have influenced the US-specific results.
3. Fundraising Reluctance: As a consequence of rising interest rates, and the cascading impact down to founders, many startups avoided raising in 2022 and for much of 2023. In general, terms have been less friendly and investors have raised the bar on expected traction, due diligence, projected growth, and associated metrics. The impact of this is that Q4 2023 saw startups either raising money because they were running out of cash, or because they were confident about closing on good terms.
It’s a reasonable expectation, as we look to 2024, that short of any further “black swan” events, we should see continued stability around that $5M mark and hopefully a move towards convergence with the upper and lower quartile as the market stabilizes further.
Q4 2023 Pre-Seed by Region
Examining the geographic trends, we can draw some more specific conclusions about the expansion of the range in Q4. Specifically, strong continued growth in pre-seed valuations across the US (+10.51%), and a surprising decrease in Europe (-26.87%). This may be a consequence of America’s proclivity to front-run other regions on technological development and the associated hype-driven fundraising trends, while European founders face a combination of headwinds: the threat of overregulation on the very technology driving growth in the US, as well as continued fears of a recession in the Eurozone.
Q4 2023 Pre-Seed by Industry
The logistics sector has faced real fundraising headwinds and took a significant hit in Q4 (-31.95%), while the previously red-hot Finance sector managed a rebound (+21.48%) from the Q3 dip as the market feels a bit more optimism. Again, these large swings in both directions will be contributing to that expansion of the pre-seed valuation range shown above, without much influence on the median.
Understanding these graphs: Rises or falls in valuation are largely indicative of the enthusiasm or optimism around new technologies, or perceptions of how founder-friendly the market has become. Capital requirements are shaped by dilution, so generally correlate with valuation though a non-correlated change could indicate the market shifting to more or less capital intensive companies (e.g. SaaS vs hardware).
Data sources: This data is sourced from valuations completed on the Equidam platform, which represent an objective and methodological perspective on startup valuation. This data includes qualitative qualitative characteristics of the company as well as projected financial performance, and a degree of calibration with market pricing data which comes from Crunchbase. For more information about Equidam’s approach to valuation, see our methodology paper. Our definition for ‘pre-seed’ covers recently incorporated startups which have less than $200,000 in revenue.
Startup valuation around the world
Pre-Seed Revenue Projections ($USD)
As usual, we expect startups in the US to produce more aggressive financial projections, reflecting the homogenous market with less friction for growth. In Q4, this gap grew wider still:
American startups have shown a slight increase in their median projection compared to Q3, indicating continued optimism. This could be due to factors like a stronger funding environment or belief in their competitive edge. In contrast, European startups exhibit a modest decrease in their median projection, suggesting a shift towards conservative financial planning. This might be attributable to a more cautious approach in a potentially slower market or greater emphasis on profitability due to tighter funding conditions.
Not much has changed in other regions, though African startups continue the slightly unusual trend of forecasting marginally slower growth in their third year.
Understanding these graphs: Revenue projections represent the anticipated income generated by the sale of products or services, serving as a key indicator of business performance and growth potential. These projections provide insights into a company’s financial viability and potential returns. These metrics are indicative of the stability and optimism in a market. For revenue projection trends, we look at multi-year averages, so changes will appear slowly.
Revenue projections around the world
Analysis: 2023 Q4 vs Q3
To compare the two data sets for startup valuations in Q3 2023 and Q4 2023, we can highlight the biggest shifts in valuation for each region and industry:
| Region | Median Valuation (Q3) | Median Valuation (Q4) | Change (%) |
|---|---|---|---|
| Latin America | $3,901,046.46 | $4,325,474.75 | +10.88% |
| Southeast Asia | $5,001,977.92 | $6,178,323.90 | +23.52% |
| Europe | $4,909,703.57 | $3,590,608.63 | -26.87% |
| Middle East | $6,003,578.57 | $6,187,797.36 | +3.07% |
| United States | $7,813,395.35 | $8,634,473.34 | +10.51% |
| Industry | Median Valuation Q3 | Median Valuation Q4 | Change |
|---|---|---|---|
| Food & Beverages | 2,466,855.74 | 4,297,102.67 | 74.19% |
| Logistics | 8,600,382.68 | 5,852,639.68 | -31.95% |
| Health & Medicine | 7,706,353.63 | 7,609,246.13 | -1.26% |
| Finance | 5,161,153.27 | 6,270,019.74 | +21.48% |
| Software & IT | 5,116,145.87 | 3,578,342.79 | -30.06% |
Leading the pack:
Southeast Asia
Multiple factors, both internal and external, likely contributed to the significant hike in Southeast Asian valuations (+23.52%). Continued digital market growth, potential “unicorn” effects, and a shifting global landscape all played a role.
Internal:
- Booming digital market: Young, tech-savvy population fuels rapid growth.
- Potential “unicorn” effect: High-value startups in e-commerce, fintech, ride-hailing could skew the median.
- Improved infrastructure & regulation: Increased stability attracts investors.
External:
- Global economic slowdown: Southeast Asia seen as a promising alternative.
- Shifting geopolitical landscape: Regional stability attracts investment.
- Emerging technologies: Early adopter advantage in AI, blockchain could drive valuations.
The rest:
Latin America: The median valuation has increased by +10.88% from Q3 to Q4. Latin America has a growing entrepreneurial ecosystem with increasing investor interest, particularly in tech startups. This increase may reflect greater confidence in the region’s growth potential and a maturing startup environment.
Europe: Europe shows a -26.87% decrease. Europe’s ecosystem is diverse, with mature markets in Western Europe and rapidly growing ones in Eastern Europe. The decrease could be due to market corrections, geopolitical tensions affecting certain regions.
Middle East: The Middle East exhibits a slight increase of +3.07%. The startup scene in the Middle East, particularly in fintech, e-commerce, and health tech, has been growing. This modest increase could reflect cautious optimism among investors or steady growth in the number of startups being established.
United States: The U.S. market shows a strong and steady increase of +10.51%. The U.S. has a robust and mature startup ecosystem, with Silicon Valley being a global hub for technology companies. This increase could be attributed to a rebound in investor confidence, or the country’s lead in AI, with high-profile startups increasing the overall median valuation.
Leading the pack:
Food & Beverage
The food and beverage industry saw a remarkable valuation surge (+74.19%) likely driven by a mix of internal and external trends. Paradoxically, the typically stable nature of this sector may have played a part in the inflation.
Internal:
- Inflation hedge: A safe haven for investors when other sectors are volatile.
- Resilient demand: People still need to eat and drink, even during economic downturns.
- M&A activity: Consolidation fuels growth and market share, boosting valuations.
External:
- Food tech innovation: Exciting new opportunities in alternative proteins, personalized nutrition, and vertical farming.
- Delivery service boom: Expanded reach and revenue streams for restaurants and food companies.
- Changing consumer habits: Increased demand for convenience, health-conscious options, and sustainability.
The rest:
Logistics: The logistics industry sees a -31.95% decrease. Logistics can be highly volatile and sensitive to global economic changes. This decrease may reflect disruptions in supply chains, increased fuel costs, or a market correction after a period of growth due to the e-commerce boom during the pandemic.
Health & Medicine: A slight decrease of -1.26% is noted. The health and medicine sector is often seen as a safe investment due to its critical nature. The small decrease could be due to market saturation after the intense investment during the COVID-19 crisis or a reallocation of funds to other emerging health technologies.
Finance: There’s an increase of +21.48%. The finance industry, especially fintech, has been growing rapidly with innovations in digital payments, blockchain, and personalized financial services. The rise in valuation could be attributed to these innovations gaining traction and more startups entering the space.
Software & IT: This sector shows a -30.06% decrease. Software and IT are broad fields with constant change and innovation. The significant decrease could be due to a market correction after an investment bubble, the maturation of certain software markets, or investors shifting focus to new and emerging technologies.
Access the Valuation Delta™ benchmarking engine
Compare your valuation with companies of a similar development stage, industry and location
About Equidam's Startup Valuation Delta Quarterly
As the leading provider of valuations to early stage companies, we provide…
- Valuations with an open, standard methodology, focused on determining fair value
- Context on valuation data with associated capital requirements, revenue and EBITDA forecast data
- Coverage of established markets such as the US and Europe, as well as emerging markets like Africa and Southeast Asia.
These indicators collectively offer an understanding of the financial landscape and sentiment surrounding startups.
By examining these trends collectively, investors, entrepreneurs, and industry observers can gain insights into the overall health of the early-stage fundraising market. It helps identify emerging sectors, evaluate risk appetite, and make informed investment decisions. Additionally, analyzing these factors over time can provide a broader perspective on the evolving dynamics and trends within the startup ecosystem. Each quarter we will release our own analysis on this data, and what it implies for early stage fundraising.
Fair valuation for startups
By striving to make fair valuation easier to calculate, we hope to give the tools to both founders and investors to understand the value of the company and have a productive discussion about price. To allow them to navigate hype and downturns with confidence, to compensate their employees fairly and to make solid returns for all stakeholders.