Enterprise Value (EV) to Next Twelve Month (NTM) revenue multiples in public markets for SaaS businesses rose sharply from 2019 to 2021 up to as high as 24x. Now, those multiples are falling below pre-pandemic levels to 10x. This has major implications for retail investors, VCs, and running a startup during a recession.
For example, startup fundraising rounds will come down (potentially for a long time). Growth is less valuable than revenue. Monetizing late stage valuations probably won’t work right now.
Read What Does the Post Crash VC Market Look Like? from Mark Suster.
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B2B SaaS businesses targeting enterprise customers that want to be in good shape to raise their Series B during a downturn need to have a run rate of $7-10MM ARR, growing at 2-5X year over year, gross margins 75-85%, and an LTV to CAC ratio of 3-5X. That’s because multiples fell from 100 to 39 times ARR and the target valuation multiples for Series B is ~20X ARR.
According to a recent presentation by Redpoint, ARR multiples for Series B and C companies dropped sharply from the all-time-high in 2022 (100x) to a more sober 39x, representing a 4x premium compared to public markets.
Predatory pricing claims are largely ignored by courts, but a version of it continues to happen with venture backed startups. A recent paper that is making waves in tech circles called Venture Predation shows how businesses like Uber, Bird, Moviepass, and more use large venture capital investments to undercut competition, build monopolies, and harm consumers.