What valuations are founders asking for when they raise their Series A round? Over the last 3 months (May to July), we’ve had conversations with 99 companies about leading or following their Series A rounds. Below is aggregate data on these 99 raises with names redacted to preserve confidentiality. Figures like revenue, valuation, and round size are medians from the conversations. Remember the valuations and revenue multiples presented aren’t necessarily what the founders got, but rather it’s what they asked for when talking to VC like us.
SaaS. We’re generalists and tend to look at everything, but as you can see 50 of the companies we talked to were SaaS. The median revenue run rate was $2mm, the median round was $3mm, and the median pre-money valuation the founder was asking was $21mm. The result was a revenue multiple ask of 10x.
Transactional models. The next largest category was “transactional”, whereby a company gets paid for each transaction it completes. We talked to 17 companies in the space, and surprisingly these businesses were asking for valuations that were 10x revenue even though the business model is not as attractive as SaaS.
Marketplaces. We talked to 4 marketplaces. These are companies with 2 sets of customers and the company takes a cut of the transaction that occurs between the customers (similar to Airbnb, Uber, Lyft, etc). The ask there was a median 10.8x revenue.
Below is the geographic spread of the companies we spoke to. While we don’t target NYC and SF, 25% of the companies came from either of those two geographies.
So what’s our view? It seems as though 10x revenue is a nice round number that founders have attached themselves to irrespective of business model, and we believe it’s too rich. While this is like the barber saying you need a haircut (we’re VC after all), we’d note that public SaaS companies trade at nearly 10x revenue right now so the ask on private startups is in line with publics. We feel this is inappropriate: in our view privates should trade well inside of publics due to differences such as size, liquidity of stock, scale, access to capital markets, profitability, etc. Indeed if you end up between 4x and 6x revenue on your round with a VC, you’ll be at market for private SaaS based on what we’ve seen get funded and what we’ve funded ourselves. Remember, the data above is what founders are asking for, so the multiple where deals are getting done is inside of that.
Founders of transactional models and marketplaces are asking for aggressive valuations in our view (for instance public marketplaces trade at ~4x revenue), and while some of the founders will get rounds done at these high asks, we believe most will have to revisit valuation.
Our advice to all founders: fundraising is hard and distracting. I’ve literally never heard a founder say “I love fundraising,” so make it easier on yourself by being reasonable with the ask. Remember, you’re partnering with an investor who is going to be with you for the next few years, not selling a car to a stranger you’ll never see again — treat the process like you’re entering a partnership and you’ll find the optimal investor and outcome sooner.
Sammy is with Blossom Street Ventures. Email him directly at firstname.lastname@example.org