Valuations of startups have quietly rebounded to all-time highs. Some investors say the slump is over. 

Generative AI businesses aside, the last couple of years have been relatively difficult for venture-backed companies. Very few startups were able to raise funding at prices that exceeded their previous valuations.  

Now, approximately two years after the venture slump began in early 2022, some investors, like IVP general partner Tom Loverro, are saying that the worst of the downturn is behind us and the startups that survived should shift from cash preservation mode to spending money on growth.  

These are not entirely empty words. According to PitchBook data, valuations for all but seed-stage companies dropped in 2023 compared to the year prior. But during the first six months of 2024, prices investors were willing to pay for new deals of U.S.-based companies not only recovered, but also reached an all-time high for median early- and late-stage deals, according to the latest report from PitchBook and the National Venture Capital Association. 

“The valuations for companies that are getting term sheets have been high,” said Stephanie Choo, a partner at fintech-focused Portage Ventures.

While fintech has been out of favor with investors since the start of the downturn, Choo said that the number of companies that can raise capital at higher valuations has increased since the beginning of the year. She pointed to U.K. challenger bank Monzo, which grabbed a valuation of over $5 billion in March, a nearly 15% increase from the $4.5 billion investors assigned it in early 2022.

Over the last two years, many startups have cut spending, which helped them grow and, in some cases, surpass their previous valuations, Choo said.

Samir Kaji, founder of Allocate, a startup that allows family offices and wealth advisers to invest in VC funds, is also optimistic that valuations and the fundraising environment have improved for startups this year. “Things are much more sanguine than I’ve seen since the beginning of 2022,” he said. “The capital markets are coming back slowly, and if you can achieve real growth and fundamentals, there is going to be capital for [your startup].” 

But those “all-time” high valuations are somewhat misleading, said Kyle Stanford, lead U.S. venture capital analyst at PitchBook. That’s because deal volume is still sluggish. There were fewer companies that raised a new round with a known valuation in the first half of 2024 than is typical for a six-month period. 

PitchBook’s valuation dataset consists primarily of strong companies that were able to grow into their previous valuations, but startups that couldn’t secure funding at a higher valuation might have been left out of this data. Many took unpriced rounds through convertible notes, insider rounds or delayed raising capital altogether, Stanford explained.

“It’s a good market right now, if you are a strong company, but if you’re struggling to hit growth targets you had set out before the pandemic, it’s a really hard market,” he said. 

Kaji echoed this sentiment, but his take was a little more upbeat. He said that while startups are still divided into “haves” and “have-nots,” the group of companies that can potentially raise at higher valuations has grown larger in 2024.

Startup valuations are improving for stronger companies for several reasons.

There’s renewed optimism that inflation is under control, and the U.S. Fed may cut interest rates soon. Additionally, the stock market has seen a significant run-up this year, influencing private investors’ outlook. Lastly, a meaningful portion of companies that raised funding in 2024 include AI companies, and AI startups receive significantly higher valuations than other sectors, Stanford said.