Dearth of late-stage deals slashes VC investment values

“There’s definitely been a slowdown by comparison to the last year, driven largely by this uncertainty in market both on the investor and the founder sides,” he said.

“But I think we’re still above 2020’s numbers in terms of year-to-date [venture capital funding] and even the run rate on the last month or quarter.

“I think 2021 was a spike, driven by large volume of large growth investments both locally and internationally, and now the long-term growth rates will start to stabilise and there will be a nice steady trend upward.”

While venture investing has taken a dive on 2021’s frothy conditions, almost $4.8 billion has already been invested into local start-ups and scale-ups in 2022, according to Cut Through Venture. These figures are sharply above those of five years ago.

Two of the country’s largest VCs, AirTree Ventures and Square Peg Capital, did not invest in any of the announced deals in August, but Blackbird Ventures made one public investment, backing no-code software company Sitemate.

Mr James said deals were happening that had not yet been announced, referencing two $30 million-plus rounds which were near closing. He also believed more companies would make redundancies in the next few months to extend the time before they had to return to market and raise again.

Blackbird Ventures partner Nick Crocker said the fund had made 27 deals so far in 2022, 14 into new companies and 13 into existing portfolio companies.

“You’ve got to remember that the Australian start-up ecosystem has grown so strongly over the last few years that even with these declines activity is still way up from just a few years ago,” he said.

“Off the back of the retreat in the public market valuations, large later stage and growth stage rounds have been the most impacted.

Global trends

“We’ve completed less large later stage investments over the last six months, which means the total amount of capital invested in dollar terms has declined. This is because most of the larger businesses in our portfolio are well funded and in no rush to fundraise.”

A correction in tech valuations is also playing out in the US, with the latest CB Insights report for the second quarter of calendar year 2022 revealing a 17 per cent fall in late-stage deal volume, and predicting a 29 per cent decline for the year.

The report also stated that in Series C, D and E deals, new investors coming into a round were increasingly requiring prioritised payouts.

The CB Insights report revealed that globally, the average deal valuation for Series B rounds was down 25 per cent in the second quarter, compared to the first three months of 2022, while Series C valuations fell 43 per cent.

But, globally, companies reporting series A and seed-stage rounds were still enjoying valuation jumps, with the average value up more than 18 per cent in these categories.

Folklore principal Tanisha Banaszczyk said locally the seed investor had seen a “soft impact” on valuations at this stage, but plenty of companies were still achieving strong prices.

“One of the benefits of early-stage investing is it will naturally have the time horizon to extend beyond the near term business cycle,” she said.

“It’s not as reactionary as later stage.”

But, she said, even seed investors were coaching founders to think about how to monetise products earlier and improve the underlying financial position of their start-ups.

“For us, the conversation comes back to what are the most meaningful ways to use capital,” she said.

“We look at the options available, [and see if a start-up] could increase revenue through selling a simplified product at a lower price … while still having an ambition to get to a larger goal.”

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