Clear Rating Monthly Newsletter February 2024
Trends in Start-up Funding from 2023
The year 2023 was a challenging fundraising year for many start-ups.
- Throughout 2023, over 19% of venture deals were down rounds each quarter, which is the highest rate since 2018. The trend remained steady throughout the year; in Q4, 19.6% of deals were down rounds.
- In all, 2023 is on pace to be the lowest for venture funding since 2018. Global startup investment in 2023 reached $285 billion — marking a 38% decline year over year (YoY), down from the $462 billion invested in 2022.
- While most industries were down YoY, one sector showed an increase: Artificial Intelligence (AI). Global funding to AI startups reached close to $50 billion last year, up nine percent from the $45.8 billion invested in 2022. Foundation model companies such as OpenAI, Anthropic and Inflection AI were the largest capital raisers of 2023, which collectively raised $18 billion.
Meet the Challenge with Confidence
In challenging fundraising environments, a valuation report from Clear Rating can provide confidence in stepping foot into your first (or next) capital raise.
- Enhanced Credibility and Trust with Investors: A professional valuation from an unbiased third party adds significant credibility to a start-up's financial claims. This external validation can build trust with potential investors, who may be more cautious during tough capital-raising conditions. It signals that the founder is dedicated to their business and is serious about raising capital to the fuel the company’s growth, which can be a decisive factor for investors weighing multiple investment opportunities.
- Objective Basis for Negotiations: A third party valuation provides a solid, data-driven foundation for valuation discussions, helping founders articulate market value and avoid the pitfalls of undervaluation or unrealistic expectations. With a clear, independent assessment of their value, start-ups have stronger leverage in investment negotiations, ensuring they can secure funding on fair terms. This objective basis helps align expectations and facilitates smoother negotiations, which is crucial when investors are more selective.
Carbon Credit Corner
Different Methods of Carbon Mitigation
A deep understanding of the different carbon mitigation methods allows us to provide the best analysis for each individual project. Explore our recent series of articles on carbon reduction/avoidance methods in the Clear Rating website’s articles library.
Enhancing Climate Strategy with CCUS
Understanding REDD+ Credits
Sequestration in Place (SIP): A Clear Path to Carbon
FAQs
How to Avoid a Down-Round?
To avoid a down-round:
- Improve Financial Metrics: Focus on key performance indicators (KPIs) such as revenue growth rate, earnings before interest, taxes, depreciation and amortization (EBITDA), customer acquisition cost (CAC) and lifetime value (LTV).
- Improve Operational Metrics: Focus on customer retention rates, inventory turnover and, for tech and app-based start-ups, monthly active users (MAU)/daily active users (DAU).
- Secure Funding: Engage with existing investors for additional support and explore alternative financing options.
- Time the Market: Aim for fundraising when market conditions are favorable.
How to Have a Good Fundraising Round When Venture Deals Are Down?
To succeed in fundraising during a downturn:
- Be Transparent: Clearly present both strengths and areas for improvement. Honesty builds trust with investors.
- Emphasize Resilience: Showcase your start-up's market share and growth in market penetration.
- Present Strong Financials: Have clear, realistic forward-looking metrics to highlight your projected revenue growth and future EBITDA margins.
- Target the Right Investors: Focus on investors known for backing start-ups in your industry during economic downturns and tailor your pitch to their interests.
What Are the Risks of Overvaluation and How Can They Be Mitigated?
Overvaluation can lead to challenges in future capital raise rounds, diluted ownership, and heightened expectations. To mitigate these risks, aim for realistic valuations by basing them on your financials and comparable company analyses. Transparent communication with investors about risks and growth strategies can also help manage expectations.
The Clear Rating Process
Unlock your startup's true value with Clear Rating today! Schedule a free initial consultation with a member our valuation team to explore tailored solutions crafted just for you
- Fill out the Contact form.
- Match with an analysis team.
- Submit documents and engage in the valuation process.
- Opt for our database service for continuous valuation accuracy.
- Ready to Begin? Contact us and embark on your valuation journey!
Contact Us
James C. Row, CFA
Founder/CEO
Clear Rating, LLC
O: +1 713.823.2900
E: jrow@clearrating.com
Hongmin Zhang
Valuation Analyst
Clear Rating, LLC
O: +1 713.823.2900
E: hzhang@clearrating.com
Elaine Phillips
Operations Associate
Clear Rating, LLC
O: +1 713.823.2900
E: ephillips@clearrating.com
