Note: We update our startup valuation parameters on a regular basis, in order to stay current with market data and ensure our platform is consistent with the fundraising environment and broad economic trends. Those of you paying attention on the platform will know we’re about to release the 5.6 update.

  • Two specific parameters are always worth a closer look, to understand how the market is developing:
  • Average and Maximum startup valuation for the Scorecard and Checklist methods, derived from our analysis of Crunchbase deal data. [Feb 2023 data]
    Industry EBITDA multiples, sourced from analysis by Prof. Aswath Damodaran of NYU Stern university. [Feb 2023 data]

Below we share our analysis of these updates in more detail.

What this update means for startup valuation

While assessing the updated parameters for 2023, based on recent transaction data from Crunchbase as well as Prof. Aswath Damodaran’s analysis released in January, it was clear that 2023 represents a ‘return to the norm’ after a long period of anomalous growth. This fits with the general narrative about a reset of startup valuations.

Looking at the updated industry multiples for this period, you’ll notice a sea of red arrows indicating broad decline. It’s not quite as bad as it may seem, as while the trend is extensive, only a few industries were hit particularly hard. The theme is a return to roughly where we were in summer 2019.

Of the hard hit industries, obvious candidates are those whose performance had been exaggerated in the pandemic period. Airlines, which we discussed in our 5.4 update back in November 2021, jumped from a multiple of 8.16 in February 2020, to 24.89 last year, and are now returning to a more reasonable 10.98. So despite that being a fairly staggering fall of 56%, in context it’s not quite so disastrous.

The same goes for a few other industries which saw a major boost from the pandemic period, such as Footwear, at 17.71 which is a 48% fall on last year but only a small decrease from the pre-pandemic 18.84.

In addition to these corrections to the pandemic’s influence on growth, we also have to address the downturn in tech stocks generally – which impacts both private and public markets. The general consensus is that investment in recent years was buoyed by large amounts of capital, low interest rates, saturation of other asset classes. This finally came to a head in 2022 as public stocks fell and the growing disconnect between public and private markets caused private investors to reconsider valuations.

Online Services is an example of an industry which has been burned on both ends here, suffering from flagging enthusiasm for digitalization in a post-COVID world and also the general headwinds for technology companies. It has fallen an eye-watering 64%, from 44.21 to 15.88, which drives it slightly below the pre-pandemic market, but probably only temporarily.

Finally we turn to the Average and Maximum changes for this parameters update, and here is a slightly more optimistic picture. More green than red, and overall no great decrease for any country. Exceptions to this include Chile, which fell by 38% and 24% respectively in this update after slow growth toward the end of 2022. This is likely the result of Chile’s rapid recovery from COVID last year, which contributed to its posting greater growth than other countries in September 2022, with 206% and 68% increase respectively. Similarly, Finland’s fall in 2023 reflects the reversal of a growth spurt in 2022. It is still an overall gain in both cases.

“From the decline in multiples and the seemingly opposite average valuation growth in Average and Maximum valuation, we can see the feeble correlation between public and private markets. 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,” concluded Daniel Faloppa, Founder & CEO of Equidam.

Listen to our analysis of these updates in this special episode of the Equidam Podcast: