Pre-Seed Startup Valuation & Fundraising Trends
As we enter Q4 – with cautious optimism – it appears that the volatility in startup valuations experienced between Q1 2022 and Q1 2023 is over.
While this update isn’t good news for everyone, with some regions and industries down, on the whole it can be interpreted as a positive signal for the rest of the year. It is particularly interesting that the volatility appears to have been contained to the period of flux within venture capital itself, further emphasizing that pre-seed companies are largely immune from macroeconomic factors like rising interest rates and public market struggles. This is in contrast to later stage companies which are still experiencing (relatively) depressed valuations and difficulty raising capital.
Looking at the global data for startup valuations and fundraising targets, we can see that Q3 is almost entirely flat with the previous quarter – which is a relief after a string quarters of upheaval and uncertainty. The very minor dip (~2%) might be attributable to seasonality, with Q3 typically being a fairly relaxed quarter for startup investment. It’s also indicated by the regional valuation data (more on that later) that most of this dip is likely to have been concentrated in Europe where external factors have contributed to general uncertainty, in addition to the seasonality factor. All other regions experienced an increase, on the whole.
Q3 2023 Pre-Seed by Region
Southeast Asia saw the largest increase in median startup valuations in Q3 2023, with a 27.8% increase from $3,9M to $5M. The Middle East also saw a strong increase in median startup valuations, rising 20.3% from $5.9M to $7.1M. Both of those regions have access to a healthy mix of ’emerging market’ opportunities for entrepreneurs, as well as well developed private markets and access to capital. This is in comparison to Africa which has abundant opportunity, but less well developed infrastructure or capital, or the US which has perhaps struggled with an imbalance between excess capital and opportunity.
Europe, the only region to see a fall in median valuation, dropping 9.3% from $5.6M to $5.1M, continues to be effected by external factors on overall optimism such as the war in Ukraine – though does exhibit a marginally higher 75th percentile.
Q3 2023 Pre-Seed by Industry
Startups in the Health & Medicine industry saw the biggest increase in valuations, with a median valuation increase of 21.4%. Similarly, the Food & Beverage industry experienced a median valuation increase of 20.6%. Significantly, both industries are showing signs of a recovery as Health & Medicine experienced a post-COVID dip, and the Food & Beverage industry struggled in the inflationary environment with impacted consumer spending. It’s a good signal, generally, that both appear to be correcting back to a normal level.
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)
While the US still leads Europe on ambition for revenue growth, as a larger and more homogenous market, it is significant than in both markets we’ve seen a slight increase in the median, a fall in the 75th percentile, and a rise of the 25th percentile. This is indicative of more rational projections and a more stable market. Potentially, this is driven by a more difficult fundraising market putting more scrutiny on financials. Startups that previously would have projected less are now simply less likely to get funding, while the startups that would have projected more are maybe modelling with a bit more rationality.
It’s also notable that projected revenue is much less linear than in the previous quarter, showing a more typical growth curve – which is a reflection of a change to our methodology in which we have removed the $25K minimum revenue threshold.
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.
Revenue projections around the world
Analysis: 2023 Q3 vs Q2
To compare the two data sets for startup valuations in Q2 2023 and Q3 2023, we can highlight the biggest shifts in valuation for each region and industry:
Valuation by Region
| Region | Median Valuation (Q2) | Median Valuation (Q3) | Change (%) |
|---|---|---|---|
| Latin America | $3,461,229.86 | $3,590,910.62 | +3.78% |
| Southeast Asia | $3,918,769.349 | $5,001,977.92 | +27.78% |
| Europe | $5,593,015.351 | $5,072,038.3 | -9.32% |
| Middle East | $5,880,144.442 | $7,073,665.86 | +20.29% |
| United States | $7,082,321.56 | $7,813,395.35 | +10.23% |
Leading the pack:
Southeast Asia
Southeast Asia saw the largest increase in median startup valuations in Q3 2023, from $3,918,769.349 to $5,001,977.92. This represents a 28% increase.
- Southeast Asia is one of the fastest-growing regions in the world, with a GDP growth rate of 5.4% in 2022. This strong economic growth is creating a large and growing market for startups.
- Southeast Asia has a rapidly growing middle class, which is driving demand for new and innovative products and services.
- Governments in Southeast Asia are increasingly supportive of startups. This is evident in the number of startup accelerators and incubators that have been launched in recent years, as well as the various tax breaks and other financial incentives that are available to startups.
- The success of unicorns such as Grab and Gojek has inspired a generation of entrepreneurs in Southeast Asia. These unicorns have demonstrated that it is possible to build successful startups in the region.
The rest:
Latin America
Latin America saw a modest increase in median startup valuations in Q3 2023, from $3,461,229.86 to $3,590,910.62. This suggests that the venture capital market in Latin America is slowly recovering from the downturn in early 2023.
Europe
Europe was the only region where median startup valuations declined in Q3 2023, from $5,593,015.351 to $5,072,038.3. This represents a 9% decrease. The decline in startup valuations in Europe is likely due to a number of factors, including the ongoing war in Ukraine, the rising cost of living, and the threat of a recession.
Middle East
The Middle East saw a strong increase in median startup valuations in Q3 2023, from $5,880,144.442 to $7,073,665.86. This represents a 20% increase. The strong growth in startup valuations in the Middle East is likely due to a number of factors, including the region’s growing wealth, its increasing investment in technology, and its strategic location.
United States
The United States saw a modest increase in median startup valuations in Q3 2023, from $7,082,321.56 to $7,813,395.35. This represents a 10% increase. The steady growth in startup valuations in the United States is likely due to the country’s strong economy, its deep pool of talent, and its well-developed venture capital market.
Valuation by Industry
| Industry | Median Valuation Q2 | Median Valuation Q3 | Change |
|---|---|---|---|
| Finance | 7,835,098.93 | 5,703,560.95 | -27.1% |
| Renewable Energy | 7,178,788.90 | 6,600,893.06 | -8.1% |
| Health & Medicine | 5,257,128.77 | 6,379,642.14 | +21.4% |
| Consumer Goods | 3,468,124.66 | 3,756,907.59 | +8.3% |
| Food & Beverages | 2,487,288.12 | 3,002,214.03 | +20.6% |
Leading the pack:
Health & Medicine
Startups in the health & medicine industry saw the largest increase in valuations between Q2 and Q3 2023, with a median valuation increase of 21.4%.
- The COVID-19 pandemic has accelerated the adoption of digital health technologies, as people have sought out new ways to access healthcare remotely. This has created new opportunities for startups in the health & medicine space.
- The aging population is driving demand for new and innovative healthcare solutions. Startups are well-positioned to meet this demand, as they are often more agile and innovative than traditional healthcare companies.
- There is a growing awareness of the importance of mental health and well-being. This has led to increased investment in startups that are developing new solutions to address these issues.
- The healthcare industry is becoming increasingly data-driven. Startups are at the forefront of using data to develop new and more efficient ways to deliver healthcare.
The rest:
Renewable Energy
Startups in the renewable energy industry saw a modest decline in valuations, with a median valuation drop of 8.1%. This is likely due to the fact that the renewable energy sector is still relatively new and faces some challenges, such as high upfront costs and the need for government support.
Finance
Startups in the finance industry saw the biggest decline in valuations between Q2 and Q3 2023, with a median valuation drop of 27.1%. This is likely due to a combination of factors, including rising interest rates, inflation, and the ongoing war in Ukraine.
Consumer Goods
Startups in the consumer goods industry saw a modest increase in valuations between Q2 and Q3 2023, with a median valuation increase of 8.3%. This is likely due to the ongoing recovery of the global economy and the increasing popularity of online shopping.
Food & Beverages
Startups in the food & beverage industry saw a modest increase in valuations between Q2 and Q3 2023, with a median valuation increase of 20.6%. This is likely due to the continued growth of the global food and beverage industry and the increasing popularity of healthy and sustainable food products.
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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.