Seed-stage startups have been largely isolated, at least so far, from the stock market downturn, but some VCs tell Axios they’re expecting that market to compress soon enough.

Why it matters: The pandemic’s startup boom led to frothy fundraising for companies at all stages. But with the broader market dangling near bear territory, the money could be less abundant.

The big picture: The seed-stage market has been flooded by investors with capital, a welcome dynamic during the boom of the last two years.

• And according to data from AngelList, median post-money valuations for pre-seed and seed deals have even slightly increased overall between January and April of this year.
• Yet, anecdotally, VCs are beginning to see some of the more irrationally high fundraising terms of previous years disappear, especially as the market retrenches.

What they're saying: "Deployment has slowed down in anticipation of lower valuations, but some of that is a factor of seed founders realizing the new environment and delaying their raise," explains Hash3 Capital Fund general partner Hootan Rashidifard, who previously invested in seed startups at Canaan Partners.

• "At the end of the day, innovation doesn't stop, but there is a renewed discipline around valuation because seed investors are cognizant of downstream valuation expectations."
• Earlier this week, even famed startup accelerator Y Combinator warned its portfolio — including those still at the seed stage— that the fundraising market will be rough for the next six to 12 months.

Between the lines: VCs may have paid those high valuations over the last two years, but they're sure glad to wait a bit to see them come down to the more realistic level they believe they should have been at all along.

• "No more $10 million [funding rounds] on $100 million [valuation] cap for a pre-revenue Mexican fintech," Salkantay Ventures partner Luis Daniel Arbulú, whose firm invests in Latin America, tells Axios.

Yes, but: The evergreen caveat is that regardless of market conditions, great companies will be in high demand from investors, and will continue to command high valuations and friendly terms.

• "From what we’re seeing, the top seed deals that we are interested in investing in are still very competitive and very competitively priced and we don’t expect those prices to come down," Position Capital managing partner Jenny He tells Axios.

The bottom line: While some segments of the startup market are more immune than others, no one will be fully spared, especially the longer this market correction continues.

• Y Combinator to portfolio founders: 'Plan for the worst.' (Protocol)
• Reversion to the mean: the real long COVID (Luttig's Learnings)
• Supergiant Seed Rounds Are Still On The Rise (Crunchbase News)

In lieu of trivia this week, I'll leave you with a popular meme that immediately popped into my mind earlier this week, as I pondered the strategy VCs are playing in anticipation of a new pricing regime....

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