The venture market may be correcting more than we think to pre-COVID times

Ever since the tech downturn began affecting startups, a question kept coming up: What if we are witnessing a correction?

The question implied that the way deals were done in the past couple of years, mostly during late-2020 and nearly all of 2021, were the exception, not the rule, and venture investing was returning to normal. But what exactly does that mean?

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Well, 2021’s frenetic deal-making environment, which saw generous valuations being handed out, was no longer the ideal anyone could hope to return to. In retrospect, investors and observers started to acknowledge that a market in which due diligence often got sidelined wasn’t healthy.

Valuations are a trickier topic. VCs like a good deal, but they also don’t want to lose money on past investments. Still, it’s slowly become clear that many startups’ valuations had gotten out of hand for a bit. With crossover funds mostly out of the picture, maybe we could nurse our collective hangovers together and pretend that 2021 never happened.

The problem, though, is that the venture market isn’t simply returning to 2020 levels, at least not in all respects. Today, we’re diving deep into CB Insights’ report on Q1 2023 trends, which shows that mega-rounds and late-stage deal share are at their lowest point in years.

Fewer late-stage deals are a cause for concern

And that’s an understatement. Last quarter had the fewest venture rounds on record (7,024) since the second quarter of 2020, per CB Insights, in addition to seeing a 12% decline from Q4 2022.

This fact alone could indicate that we’re in a market that’s correcting back to 2020 levels, but breaking down the data reveals a more concerning picture.