What’s Happening to Startup Valuations?

By Grit Daily Staff Grit Daily Staff has been verified by Muck Rack's editorial team
Published on February 28, 2023

From start-ups focusing on long term growth to paying more attention to tech, here are 7 answers to the question, “What is one thing that’s happening to the valuation of startups in 2023?”

  • It Keeps Falling Due to Unsustainable Growth
  • Start-ups Are Focused On Long Term Growth in 2023
  • The Fear of Debt Default
  • Dropping Valuations Except for Major Innovators
  • More Attention to Tech
  • Some Will Still Stand Strong
  • Show Them the Money!

It Keeps Falling Due to Unsustainable Growth

Recently, the valuation for startups has been decreasing. While there are many factors that have affected this decrease in the valuation, I think that the unsustainable growth of VC-backed companies in 2021 is one of the primary culprits of this event. In 2021, we witnessed over 100% increase in startup valuation compared to 2020.

However, entering the last quarter of 2022 and the first quarter of 2023, these valuations have slowed down. This is mainly due to rising geopolitical tensions, rampant inflation, and interest rate hikes. Nonetheless, whatever the reasons are, more and more venture capitalists, limited partners, and other investors are certainly more careful in committing to startups in the current environment. I believe that if the current economic and geopolitical environment persist without any sign of improvement, this startup valuation trend will continue until 2024 or even 2025.

Paw Vej, Chief Operating Officer, Financer.com

Start-ups Are Focused On Long Term Growth

In 2023, the valuation of startups is likely to see a paradigm shift. Investors look at the impact and sustainability of businesses. Consequently, entrepreneurs must demonstrate that their startup is focused on long-term growth while also proffering tangible benefits for stakeholders; those who fail to do so will find themselves at an increasingly insurmountable disadvantage in terms of securing financial backing.

This trend toward ethical investing has led to greater scrutiny being placed upon startups from an investor’s perspective, requiring them to stand out through measures such as sustainable practices and social responsibility initiatives.

Ryan Rottman, Co-founder and CEO, OSDB Sports

The Fear of Debt Default

The US government is nearing the dreaded time of year when they must vote to increase the debt ceiling. This time around, there are legitimate fears that this may not happen. There have even been rumors of a potential $1 trillion coin being minted to prevent default. People are worried and holding off investing. This has resulted in lower valuations for startups in most industries.

Simon Bacher, Ceo, Co-founder, Ling App

Dropping Valuations Except for Major Innovators

Valuations will come down to more realistic levels as the economy remains sluggish. With slower fundraising, startups will struggle to achieve the same valuations, even in more well-funded sectors like cybersecurity. Those startups that see the highest valuations will be doing the seemingly impossible in today’s market – innovating to provide products and services to customers at prices they can actually afford.

Jack Underwood, CEO and Co-founder, Circuit

More Attention to Tech

In 2023, startups are likely to see a major shift in valuation, with more attention given to the technology and software that they have built in addition to the traditional metrics such as revenue, market size, and customer base. Companies will also be expected to demonstrate tangible results from their technology, such as customer acquisition or increased user engagement.

In addition, startups may see higher valuations as investors become more versed in the new development trends, such as blockchain and AI, and understand the potential for these technologies to improve the lives of customers.

Victor Mathieux, Co-founder and CEO, Miracle Brand

Some Will Still Stand Strong

While many sectors will be down, a few will stand strong. Despite 2022’s poor performance (especially Q4), industries like clean energy and defense are outperforming their competition. These industries won’t be as affected by rate hikes and the capital squeeze, and therefore, will be able to weather the storm as it comes, hopefully without having to lay off too many employees. Other industries, however, even big tech, will not be so lucky as the market continues to dip.

Bryan Jones, CEO, Truckbase

Show Them the Money!

The year ahead will be more about assessing whether or not startups are getting their products right in order to retain their customers/subscribers. In addition, shorter sales cycles will play an important role in valuation, as will customer acquisition costs. In short, inflation has made startup assessment all about the bottom line.

Kenneth Lin, CEO, BOOP Bakery

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By Grit Daily Staff Grit Daily Staff has been verified by Muck Rack's editorial team

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