Introduction Both early- and late-stage VC valuations set record highs in Q4 2020. Robust dealmaking at both the early and late stages resulted in record pre-money valuations, with the early- and late-stage medians coming in at $35.0 and $120.0 million, respectively. Several outsized deals, along with the US equities market’s rally and record levels of dry powder within the venture ecosystem, are responsible for this push. To note, velocity of value creation (VVC)¹ and relative velocity of value creation (RVVC)² at both stages have fallen YoY as value creation slowed during the pandemic.
During 2020, angel & seed-stage deals were the only investments within venture to show a decline in valuations. This is likely due to the pandemic-led economic uncertainty that caused investors to require a higher return on these riskiest investments, which manifested into the median stake acquired in these angel and seed transactions to increase over 2019’s figures by 4.4% and 3.6%, respectively.
Finally, valuation step-up at exit improved on the back of strong demand from buyers. Valuation step-ups at exit had a robust year, with public listing step-ups improving YoY to 1.4x, while the acquisition step-up held at 1.7x— approximately the 10-year average. Elevated public market multiples, in addition to the increased volume of biotech IPOs, contributed to improving step-ups. As long as the current low interest rate environment continues, we expect these multiples to remain high as investors keep searching for growth.
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