Web 2.0 valuations slashed to 2003 levels

Angel investor Jeff Clavier says Sequoia Capital slide show was pivotal moment

How do you end an investment boom in the hottest Internet sector since the dotcom era?

If you're a top-tier venture capital firm, merely by predicting it.

The gloom and doom presentation that Sequoia Capital gave to its portfolio companies last month has done more than put fear into the hearts of Internet startup executives.

It's also slashed early-stage valuations for Web 2.0 companies by at least half, according to angel investor Jeff Clavier.

"Web 2.0 has been reset," says Clavier, a former VC who's had five Web 2.0 companies sold and who this year was named one of the 25 most influential people on the Web by BusinessWeek magazine.

Clavier has invested in more than 20 companies from his current, $12 million seed stage fund that he raised last year. He's making one or two new investments every month through his firm, SoftTech VC.

He called the Sequoia presentation "the pivotal moment of reset" which has prompted startups that hadn't already done so to slash costs and re-evaluate their business plans and expectations.

Entrepreneurs can forget about Series A pre-money valuations between $6 million and $12 million, which were common during the last two years.

"We're back to 2003 valuations," which means Series A rounds are being valued pre-money between $2.5 million and $3 million, he says. 

That means valuations for startups of all stages are being reset, since late-stage valuations typically lag the direction of the Nasdaq by about six months. Given that the tech-heavy index is down close to 40% during the last 12 months, we can expect late-stage startups that need to raise money to see some ugly cram-down rounds next year.