Here is a short presentation that my colleague Jeremy Levine and I put together to highlight valuation trends in various tech sectors.
Within the past two years, over 50 new “unicorns” have emerged in the U.S. These unicorns are propped up by venture capitalists and their rapidly expanding funds. While many will evolve into self-sustaining businesses and will generate handsome returns for their investors, some will not. Nonetheless, investors continue to chase these unicorns and invest in startups at increasingly higher prices.
I have only been in the VC industry for three years. So as a VC, I was “born” in a moment where 10x, 20x, and even 30x multiples are the norm. I often forget that it wasn’t always like this. In fact, my colleagues reminisce about their investments a decade ago, where $3M checks bought 20% of a hot startup. However, had we invested in those startups at two or three times the valuation, or at a valuations that are considered “normal” today, our funds’ performance would have dropped significantly. Price really matters.
We often look to the public markets to help inform private market valuations. Today, the public markets are treating the tech sectors very favorably, but any VC can tell you that private market valuations are many multiples of their public comps. The bottom line, you should only pay up when you’re right!