On February 23, 2023, you’ll be upgraded to the latest version of Equidam with updated valuation parameters. This may result, on average, in a slight valuation decrease.

What’s changing

1 | Average valuations used in the Scorecard Method and maximum valuations used in the Checklist Method

We base our estimates on real transactions by country since February 1st, 2020. Whenever we were not able to find a significant amount of real pre-money valuations in a given country, we broadened our perspective to the closest larger geographic entity (namely, continental region and continent). You can refer to the table at this link to see how they will change for your country specifically.

2 | Industry EBITDA multiples used in the VC and DCF with multiple methods

Our multiples are based on public market conditions at the beginning of the current year. Data is taken at the global level and aggregated by industry. You can refer to the table at this link to see how they will change for your industry specifically.

3 | Discount rate components used in the two DCF methods

Most of the parameters determining the discount rate have been updated to reflect the most recent market situation in terms of systemic and industry-specific risk. You will be able to see these parameters in your valuation reports.

General comments on the effect of the changes

On average, valuations will experience a slight decrease.

The broad narrative in startup fundraising, since around the second half of last year, has been one of significant decline and difficulty. We’ve remained slightly more optimistic than that, suggesting the market was experiencing a correction back to pre-pandemic levels. The data in this update seems to confirm that perspective.

We will release another article examining this theme in more depth, but the key drivers of this shift are the influence of the pandemic on enthusiasm for digital solutions, as well as leisure and travel related industries, along with historically low interest rates and a lot of liquidity in the market. This resulted in an irrationally optimistic fundraising market, with a compounding impact on the rise of startup valuations. Founders and investors had to come to terms with reality when the energy crisis prompted rising inflation and consequentially a rise in interest rates, stalling growth. .

What’s clear from the data and analysis in this 5.6 update is that we’ve settled back into conditions that are similar to 2019. It’s not great, but it is significantly better than some predictions about where we were heading. Indeed, the Average and Maximum valuation data shows signs for greater optimism in private markets, as most countries experience continued growth in this area (and those which have fallen are generally just normalising after a growth spurt last year).

“Despite the public influencing the private, they should not and are not strictly correlated. The fact that startups are now an established asset class means that even large scares in the public market will have the appropriate lower impact on smaller, disconnected with macro-economic factors early stage ventures.”
– Daniel Faloppa, Founder & CEO of Equidam

Additional commentary:

Fundraising decreased significantly throughout 2022 due to rising interest rates, inflation, geopolitical difficulties, and a downward economic trend. According to Techcrunch, investors in this market will be attracted by efficiency indicators such as high gross margins, strong gross retention rates, and rapid customer expansion. Gross retention, in particular, will be crucial in 2023 since it is considered to be a clear metric that consumers appreciate the company’s items and find real value in them in such a challenging budget scenario.

According to the 2023 U.S. Venture Capital Outlook published by PitchBook Data, the expectation of a decline in venture capital invested into startups is not all bad news. The experts argue that fewer businesses seeking late-stage venture capital may also contribute to a slowdown. To bypass the challenging capital-raising market, many businesses will instead concentrate on sustainable development and cost reduction. The analysis predicts that, despite a slowing in total deal value and count, seed-stage company valuations and deal sizes will continue to rise, which is good news for those joining the market. They are further away from an IPO now that they have just received money, so they can wait till the doors to liquidity open again.

Please don’t hesitate to let us know if you have any questions. Thanks for using Equidam!

The Equidam Team