Timing the Market for Early vs. Late Stage Venture Investments

Economic cycles have a significant impact on the valuations of ventures, but early stage venture valuations are more stable than late stage venture valuations.

Late-stage ventures have typically achieved significant revenue and are close to or have reached profitability. During an economic downturn, these ventures face different challenges, such as a decline in customer demand, supply chain disruptions, and increased competition. These factors can result in lower revenue and profitability, which can lead to lower valuations. There are also fewer ventures that reach Series D funding, and they are raising from different types of investors than early stage ventures, including “tourist” investors that participate (poorly) in the asset class during market bubbles. For these reasons and more, late-stage venture valuations vary the most widely across economic cycles. 

One clear implication of this data is that timing the market matters much more for late-stage venture investors than for early-stage venture investors.