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Venture capital valuations plateauing in Europe, fall could be on its way

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Venture capital valuations in Europe have plateaued so far in 2023 amid lower growth rates, workforce reductions and tougher funding conditions, new data from PitchBook reveals.

The research firm’s Q1 2023 European VC Valuations report said 2021’s post-Covid boom for VC activity, which spilled over into early 2022, had seen valuations balloon, particularly at later financing stages.

But tightening global markets, high inflation and interest rates have seen those rising values capped amid a shift away from growth and towards profitability, PitchBook said – meaning valuations could begin falling later this year.

It said, “VC dealmaking activity decelerated in Q1 2023, as investors have been more selective in their approach to deploying capital.

“Upward inflationary pressure coupled with interest rate hikes and low growth has hampered growth prospects for businesses requiring financing.

“Startups across financing stages are experiencing one of the toughest funding environments in recent history.

“Due diligence processes are being extended, with revenues, valuations, and runways under renewed scrutiny.

“Major rounds in Q1 involved debt portions to top up equity rounds as businesses looked to extend runway.

“We expect more structure on deals in the near term, too, as VC-backed companies look for capital amid more investor-friendly term sheets.”

Median early-stage VC valuations fell more than 15% in Q1 to €5.5m, the third consecutive quarterly decline.

The median early-stage valuation step-up is pacing at 1.4x in Q1 2023, PitchBook said, significantly down from its 2.0x reading in 2022.

The late-stage valuation in Q1 increased by almost 27% quarter-on-quarter to €13.4m – although a single large deal involving Germany based Enpal, which picked up €215m at a €2.2bn valuation, skewed that number.

The median venture-growth valuation fell to €25.3m in Q1, a 40.9% decline from Q1 2022.

In contrast, the median venture-growth deal value rose to €9.9m, a 19.9% increase from Q1 2022.

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