The typical existing Seed-stage startup is valued at roughly one-quarter the price of newly funded Seed deals, revealing how poorly new transactions represent the broader venture market, according to a new analysis published by Nnamdi Iregbulem on his Substack. The report argues that private valuations are systematically distorted because only higher-quality companies successfully raise capital, creating a severe selection bias that makes observed deal prices far higher than the true worth of the average startup. By working backward from Series A graduation rates and valuations, the analysis constructs what it calls a "true Seed valuation index" that adjusts for this bias and paints a strikingly different picture of the early-stage ecosystem.
The analysis finds that new Seed financings are valued at four times the average and ten times the median of all existing Seed startups. Until recently, the median Seed startup wasn't worth more than roughly $1 million, while averages hovered between $3 million and $4 million historically — both figures substantially lower than the valuations splashed across startup headlines. The chance that a 95th percentile Seed startup successfully raises Series A in any given quarter has dropped from 50% in 2015 to around 25% today. The median startup now graduating to Series A comes from the top 3% of active Seed companies by valuation, compared to the top 10–15% in the early 2010s. Only 4% of Seed startups graduate to Series A each quarter, yet those graduates account for 45% of the total value of all Seed-stage companies. New Series A deals are priced at approximately 12 times the valuation of the average Seed startup, demonstrating what the report calls "extreme positive selection." The aggregate market capitalization of the entire Seed ecosystem has partially recovered since 2021, but the active Seed population peaked in 2022 and has contracted since, meaning the recovery is purely valuation-driven rather than reflecting growth in company count.
The report states that "observed private valuations exceed the true value of the average startup" because they "bake in a severe selection bias, since better companies are more likely to fundraise." According to the analysis, this creates a fundamental problem: "When only winners transact, prices can rise even as the market beneath them deteriorates." The author writes that these misleading metrics "lead us astray in our efforts to understand the state of the venture market," and that "anyone using these numbers as a benchmark pays a price for it: founders pricing rounds based on peers' valuations, investors citing 'comps,' the LP marking their book."
The report explains that private valuations differ fundamentally from public market prices because participation is limited, transactions happen infrequently in large blocks, and then "trading volume" resets to zero for months or years. What's commonly called a private valuation is really a financing price — the rate at which an investor funded the company — not a trading price reflecting ongoing market consensus. This creates two core problems: timing, because valuations become instantly outdated after a financing closes, and composition, because successful fundraisers are a biased sample of the broader ecosystem. The analysis uses an equation to formalize this: true valuations plus selection bias equals observed valuations. Selection bias itself has two components — the degree to which successful fundraisers are more valuable than others, and the proportion of companies that actually fundraise. Both the share of companies graduating and the share of total value they represent have fallen over time, but the graduating share of companies has dropped much more sharply, magnifying the overall selection bias. The report likens the situation to estimating house values if only the best homes in the best neighborhoods ever sold: average sale prices could move in one direction while average home values move in another, since those groups are composed differently.
The analysis concludes that private valuations can appear more expensive simply because fewer, higher-value companies are transacting, rather than reflecting genuine broad-based appreciation across the market. The corrected Seed valuations estimated in the report have not grown at the same pace as new deal valuations, and observed valuations have become less representative over time. The report notes that while it focuses on the Seed stage, the same framework could be applied across other stages of venture capital. The bottom line: the winner's circle in early-stage investing is now a decidedly more exclusive club, and the eye-popping valuation numbers dominating headlines are essentially irrelevant to what most companies are actually worth. For tech executives navigating funding strategy, this disconnect suggests that competitive positioning based on peer deal announcements may be dangerously misleading. The implication is that boards and management teams need independent valuation discipline rather than benchmarking to a fundamentally unrepresentative transaction market.