Startup valuations have quietly risen to all-time highs. Some investors say the recession is over.

Generative AI businesses aside, the last few years have been relatively tough for venture-backed companies. Very few startups were able to raise funding at a price higher than their previous valuation.

Now, in early 2022, nearly two years after the venture recession began, some investors, such as IVP general partner Tom Loverro, are saying the worst of the recession is behind us and that startups that survived should shift out of cash conservation mode and spend money on growth.

These aren’t entirely empty words. Valuations for all but seed-stage companies declined in 2023 compared with the previous year, according to PitchBook data. But during the first six months of 2024, the price investors were willing to pay for new deals from U.S.-based companies not only recovered but hit all-time highs for both early- and later-stage deals, according to PitchBook data and the latest report from the National Venture Capital Association.

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

While fintech hasn’t been popular with investors since the start of the recession, Chu said the number of companies raising capital at high valuations has increased since the start of the year. He pointed to UK challenger bank Monzo, which garnered a valuation of more than $5 billion in May, up about 15% from the $4.5 billion investors gave it at the start of 2022.

Chu said many startups have cut expenses over the past two years, which has helped them grow and in some cases even surpass their previous valuations.

Sameer Kazi, founder of VC Funds, a startup that allows family offices and wealth advisors to invest in VC funds, is also optimistic that the valuation and fundraising environment for startups has improved this year. “We are far more optimistic than what I have seen since the beginning of 2022,” he said. “Capital markets are slowly coming back, and if you can get real growth and fundamentals going, capital will be available [your startup],

But the “all-time” high valuation is somewhat misleading, said Kyle Stanford, PitchBook’s chief U.S. venture capital analyst. That’s because deal volume is still sluggish. The number of companies raising new rounds of funding with known valuations in the first half of 2024 was lower than normal for a six-month period.

PitchBook’s valuation data set primarily includes strong companies that were able to increase their previous valuations, but startups that could not secure funding at high valuations may be excluded from this data. Stanford pointed out that many companies raised undervalued rounds through convertible notes, insider rounds, or delayed capital raising altogether.

“It’s a great market right now if you’re a strong company, but if you’re struggling to achieve the growth targets you set before the pandemic, it’s a really tough market,” he said.

Kazi echoed the same sentiment, but his outlook was slightly more positive. He said startups are still divided into “rich” and “poor”, but the group of companies potentially raising funds at higher valuations in 2024 has grown larger.

Startup valuations are improving for strong companies for several reasons.

There is renewed optimism that inflation is under control, and that the US Fed may cut interest rates soon. Additionally, the stock market has seen a significant rally this year, which has impacted the outlook for private investors. Finally, Stanford said a significant portion of companies raising funding in 2024 include AI companies, and AI startups receive significantly higher valuations than other sectors.