early stage valuations

Data from the law firm Cooley LLP indicates that valuations of early stage companies came down from the stratosphere in the fourth quarter of last year, declining from $19 million to $16 million. That’s good news for investors.

Valuations had reached such heights that investors were pulling back, unable to generate sufficient returns to justify the risk of making early stage investments.

The valuations of early staged companies had jumped dramatically in recent years. The typical seed stage company was valued at $4 million in the third quarter of last year, up from $2.5 million two years earlier, the Halo report explains (PDF). Similarly, the median Series A valuation skyrocketed from $8.3 million in September of 2013 to $19 million in the third quarter of 2015, data from law firm Cooley LLP shows.

That’s a problem for the economics of early stage investing. Given the riskiness of investments in young companies, many investors figure that only one-in-ten of their portfolio companies

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Source: Small Business Trends