SaaS valuations slide for late-stage deals
While some late-stage investors started to adjust valuations in response to the stock market sell-off at the beginning of the year, PitchBook data shows that prices for venture capital deals for SaaS companies still have not fallen nearly as far as their public comparables.
The median valuation of a late-stage software company dropped to $155 million in 2022, representing a 23% decline from the previous year. However, software valuations are still significantly higher than they were prior to 2021.
Meanwhile, valuations of early-stage deals, which tend to be more isolated from stock market volatility, have continued to climb, reaching a record of almost $98 million, a 63% increase from last year’s median value for SaaS startups at Series A and Series B. Farthest from the public markets, angel and seed deals have been mostly immune to valuation pressures, rising to a median value of over $16 million, a 28% increase from 2021.
Since private deals are often announced a month or two after they are signed, valuations of software startups are likely lower than is currently reflected in the data.
Only time will tell if VC-backed SaaS companies’ ultimate tumble will be as pronounced as their publicly traded counterparts, but in all likelihood, the startup valuation slump will not be as severe.
“There are many mechanisms private companies can use to boost or manipulate their valuation,” said Kyle Stanford, a senior analyst with PitchBook. “The [drop] won’t be a one-to-one move compared to the public market.”
Startups could start accepting investor-protective deal terms, such as high liquidation preferences, meaning investors get paid more than earlier backers or founders in a liquidity event.
Companies could also choose to raise debt or convertible notes instead of traditional equity, thereby avoiding setting a new price.
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