What is a fair price premium for a quickly growing startup? The answer is constantly changing, but recent history teaches us that it’s probably not more than 200% over public-market comps. It may even be closer to 100%.
It’s not an academic question. Where the startup price premium benchmark settles this year could help determine if a host of Series B and C checks are written at valuations that are miserable, palatable or even exciting.
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Pulling from a Redpoint Ventures report, this morning we’re examining how middle-stage startup valuations scaled to incredible levels in 2021, and how those price points have reacted to comparable companies’ projected revenue multiples contracting sharply. This will involve some numbers, some charts and a tiny bit of math, but I hope that when we finish, we will better understand how startup valuations managed to leave the atmosphere during the last tech boom and how close to earth they have returned in 2023.
Startup founders looking to fundraise later this year, this one is for you.
The ascent to madness
The venture capital market is responsive to the stock market. As the value of tech stocks rise, so do the value of startups, and vice-versa. This is reasonable, because most startups are building towards an eventual IPO, so their value today should reflect their potential value in the future when they exit, which is partially set by recent stock market performance.
Redpoint’s new data makes the above plain and details how different slices of the startup-venture fundraising market can be stickier to price points than you’d expect. As with everything, let’s start from the beginning.
In the following table, we can see how prices for fast-growing public software companies ballooned over time, and how Series B and C startups saw their values scale even more rapidly:
A few notes on this data. First, the companies represented in the Series B and C line are a mix of companies that Redpoint would “want to look at,” according to Logan Bartlett, a managing director at the venture firm. That includes companies in the United States, Canada and Europe. This is a geographically-constrained dataset instead of a global one, but given the chunk of the venture market that North America and Europe loosely represent, it’s not a bad sample to chew on.
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Photo and Author: Alex Wilhelm