In the startup world, valuations are starting to come down a bit.

By that I mean that new companies raising money today are being valued at lower prices than they were just a few months ago.It’s not a dramatic move. This is something you’d notice only if you looked at multiple startup deals per day like Andy and I do. So, why are valuations for new startups dropping, as compared to similar deals less than a year ago?

Mostly because the stock market is “correcting.” It’s the fear. Even though we’re down only around 10% from highs, people are spooked.

Pick your poison:

On top of these macroeconomic concerns, stocks have been in a bull market for a while now. Investors are expecting a pullback. And many don’t fully trust the “recovery,” which seems to have mostly affected just the stock market.

Of course, there’s no direct connection between stocks and startups. Startup investments don’t trade on an exchange (yet). They aren’t liquid like stocks. But they’re still affected by the overall market.Whatever the cause, people are tightening up their finances a bit.

The result is more attractive deals, especially at the early rounds.

And it’s not just better for investors. In many cases, lower valuations are better for startup founders too. That may seem counterintuitive at first. Let me explain.

You see, many companies that raise their early (seed) rounds at high valuations have trouble when it comes time to raise a Series A round. Series A investors are picky. A company is expected to make serious progress with their seed money.

This is why many companies don’t make it past the seed stage. When a venture capital firm leads a Series A, they want to own as much of a company as reasonably possible. This can be difficult with startups that raised an overvalued seed round.