Temperature Check: What's Driving Startup Valuations In 2024?

In a perfect world, founders and investors would always agree on what a startup should be valued at.

But as founders out there know all too well, this isn't perfect a perfect world. And that is particularly true for startup valuations.

More than most other startup metrics and numbers, valuations have been making headlines over the last few years. As it has been widely reported,  startups were often overvalued following the COVID pandemic. Then in 2023, there was a big disconnect around what startups and prospective investors saw as a fair valuation, according to a report by Morris, Manning & Martin, LLP’s Emerging Companies and Venture Capital practice. That — alongside other macroeconomic trends — led to fewer deals getting to the check writing stage last year. 2023 also saw a number of down or flat rounds, meaning startups raised more money without increasing their overall value.

Temperature Check: What’s The State of Valuations Today

So where are we in 2024?

Sid Mookerji, Founder and Managing Partner at Atlanta-based venture capital firm Silicon Road, told Hypepotamus that he’s seen “valuations have come back down to Earth” recently. That has made it possible for his team to do more deals in the commerce space. So far this year, the team has written six checks and have more on the horizon. That is a lot more than previous years, where Silicon Road focused more on writing follow on checks to current portfolio companies.

What’s driving that recalibration on valuations is a supply and demand problem, he added.

“There are lots of companies that now have to raise money to stay in business. But there are fewer venture funds that are writing checks,” Mookerji said.

What Startups Need To Know

So what do startups need to know to navigate this time? For those looking to raise venture capital, it is all about showing off that revenue number.

In 2024, Mookerji said that venture capital firms expect to see higher revenue numbers. So startups looking to raise a Series A, for example, will have to have more revenue coming in than in previous years if they expect to get a valuation they might be aiming for.

Gregg Ficery, Founder and President at Integgra Valuation & Advisory Services, works with startup founders to navigate the valuation process. He told Hypepotamus that while founders are “optimistic by nature” and might be tempted to chase high valuations early on, it is often best “to raise as little as possible and prove initial traction to earn a higher valuation in a subsequent funding round” in order to preserve the most equity.

“Startup founders should be well-educated about determining a reasonable valuation in an investor pitch. This includes, among other things, considering the founder's experience and the company's market size, competition, size, stage, sector, growth, and profitability,” Ficery added. “An effective valuation attracts investor capital efficiently by creating a "win-win-win" opportunity for founders, investors, and employees, meaning that each party receives sufficient incentive to continue participating in the company through a successful exit.”