What Does the Post Crash VC Market Look Like?

At our mid-year offsite our partnership at Upfront Ventures was discussing what the future of venture capital and the startup ecosystem looked like. The market was down considerably with public valuations down 53–79% across the four sectors we were reviewing (it is since down even further).

==> Aside, we also have a NEW LA-based partner I’m thrilled to announce: Nick Kim. Please follow him & welcome him to Upfront!! <==

Our conclusion was that this isn’t a temporary blip that will swiftly trend-back up in a V-shaped recovery of valuations but rather represented a new normal on how the market will price these companies somewhat permanently. We drew this conclusion after a meeting we had with Morgan Stanley where the showed us historical 15 & 20 year valuation trends and we all discussed what we thought this meant.

Should SaaS companies trade at a 24x Enterprise Value (EV) to Next Twelve Month (NTM) Revenue multiple as they did in November 2021? Probably not and 10x (May 2022) seems more in line with the historical trend (actually 10x is still high).

What You Can Learn From Public Markets

It doesn’t really take a genius to realize that what happens in the public markets will filter back to the private markets because the ultimate exit of these companies is either an IPO or an acquisition (often by a public company whose valuation is fixed daily by the market).

This happens slowly because while public markets trade daily and prices the adjust instantly, private markets don’t (Read more...)