Down Rounds Slow Down

December 7, 2020

Private equity has been through a roller coaster 2020, especially in terms of valuations. In a fascinating look at private equity conditions in 2020, Pitchbook provides us with a helpful overview.

Values Across Quartiles – Angel Pre-Money Valuations

Our first look from Pitchbook is valuations across the average, median, 25th percentile, and 75th percentile quartiles. Before looking, would you guess that valuations increased or decreased through the first three quarters of 2020?

The answer is down across all four mentioned quartiles. On the 75th percentile, angel pre-money valuations are down to $9.8 million, down from over $15 million at the start of the year.

On the other end of the spectrum, companies in the 25th percentile have experienced less of a decrease in valuation, down to $2.0 million from a little over $2 million to start the year.

The average and median valuations are also weaker, with the average down to $10.0 million and the median down to $5.0 million.

Source: Pitchbook

Values Across Quartiles – Seed Pre-Money Valuations

What about the seed stage given that angel pre-money valuations are weaker so far for 2020? The answer is more positive.

Seed-money valuations have generally held steady through the first three quarters of 2020. For the 75th percentile of companies, valuations increased to $12.0 million, up slightly from their starting point for the year.

On the other end, 25th percentile companies have seen their valuations increase to $5.0 million, also up slightly for 2020.

Pitchbook’s measures for the median and average have been fairly flat at $9.7 million and $7.5 million, respectively.

Source: Pitchbook

Angel Ownership Stakes

One of the more interesting results was a tightening of angel ownership stakes through the first three quarters of 2020. For companies in the 75th percentile, angel ownership stakes have held steady at approximately 25.0%. For companies in the 25th percentile, angel ownership stakes have increased to 11.3%, up from just over 5% in 2019. For companies at the average and median, angel ownership stakes have seen their take increase to 22.4%/20.0%, respectively.

Source: Pitchbook

Nontraditional Investing

Another one of the more interesting charts from the Pitchbook report deals with nontraditionals investing at the late-stage value.

Interestingly, as nontraditionals invest heavily at the late stage in 2020, deal value has surged, as shown in the following figure.

Comparing the first three quarters of 2020 against the entire 2019 year, the number of deals is down only to 2,269 from 3,493 in 2019. On deal value, value currently stands at $83.8 million, down only slightly from the entire 2019 year’s $98.0 million.

Source: Pitchbook

Summing Up

Overall, private equity’s response to economic conditions in 2020 has been divergent. On some ends of the valuation and stage spectrum, conditions have been amazingly strong. On other ends, the picture is not as bright.

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