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Venture valuation reset milder than expected

This year was expected to bring a significant reset of venture valuations in the United States.

So far it hasn’t.

Sure, valuations are soft. But prices haven’t compressed to the degree many investors anticipated, so say many GPs. Some partners even use the word “frothy” to describe values for top-performing companies.

One example of this is Airbnb’s round from the summer. The company reportedly secured a $30 billion up-round valuation when it closed on $850 million of new financing.

This pattern of healthy later-stage round sizes and big-money deals continued somewhat unbroken into the third quarter. The average late-stage deal size slipped to $21.4 million during the period, down from $29.6 million a year ago and $37.8 million in the second quarter, according to data on U.S. activity from PitchBook and the National Venture Capital Association. But it was similar to the first quarter’s $23.4 million and up from the same period of 2014.

This is true even as late-stage funding and venture funding overall fell in the quarter.

For all of 2016, the average late-stage deal size of $27.5 million is actually a smidgen higher than last year’s $26.8 million.

What’s more, deals of $25 million or more made up 7.5 percent of this year’s deal flow through the third quarter, a higher percentage than last year. And the percentage of overall capital going to them is about the same at 62.5 percent, according to the PitchBook data.

For some VCs, the rich funding environment has meant holding back on opportunity-fund investments, where they had hoped lower prices would create an opening. Others have favored inside rounds, even at a slight discount to keep company values from falling more precipitously.

In September, PitchBook examined pre-money valuations through the first eight months of the year. What it found is the medians for Series C, Series D and later rounds were up while those for Series A and Series B rounds were off modestly.

Whether this trend continues through the rest of the year is anyone’s guess at this point, but the signs of a shift are not yet visible.

Photo courtesy of Photo courtesy of ©iStock/Alexey Ivanov