Hi William, Could you give some examples of companies that are "Hyper-growth software companies with >40% YoY revenue growth _that are already public_ are trading at an average of 8.1x NTM revenues" ? Thank you for your time.
Hi William, Could you give some examples of companies that are "Hyper-growth software companies with >40% YoY revenue growth _that are already public_ are trading at an average of 8.1x NTM revenues" ? Thank you for your time.
From Guggenheim's latest software valuation report for February 2023: "Growth buckets defined based on CY22 revenue growth rate. Hyper Growth Software (>40%) includes AMPL, ASAN, BILL, BRZE, CFLT, CRWD, DARK, DDOG, GTLB, HCP, IOT, MDB, MNDY, NET, OKTA, S, SNOW, ZI, ZS."
If one takes the median ratio between Enterprise Value and NTM Revenue for those companies, it was 8.1x in the most recent report (which uses valuations as of Jan 31, 2023).
Those valuation multiples are down approximately 83% from where they peaked in Nov 2021, and roughly 70-75% below the levels when Substack raised the Series B in Mar 2021, as many others have now pointed out. Note that The Information, in its Creator Economy Newsletter yesterday, said:
"Of course, Substack achieved that valuation in the anything-goes days of startup fundraising, which ended in late 2021 when interest rates started rising. Since then, as we all know, asset values have dropped across the board." "Substack certainly deserves an award for fundraising chutzpah."
My main point is that it's fine to have chutzpah when you're negotiating against a sophisticated, well-capitalized investor like Andreesen Horowitz, but not when you're raising money from friends, family, or your own customers.
Thank you William! I appreciate you taking the time to explain the economic situation better.
I found this article from Goldman Sachs Asset Management (July 2022) that states,
"Hyper- growth software companies have seen their valuations decline by three-quarters from their November highs to the end of June 2022, to an average valuation of 8.0x next-twelve-month revenues. This is below the range seen in 2015-2020."
Datadog might be a reasonably good comparison: Q4 2022 revenue was $469.4M, up 44% YoY. This puts their revenue run rate at ~$1.9B, and their NTM revenue at roughly $2.2B.
As of this morning, they're trading at a $22B valuation, or roughly 10x NTM revenues.
If Substack had priced this round at 10x, fine. 23x though...that really doesn't seem right to me.
Even is Substack’s valuation is 75% lower, does it matter if there are enough investors who are willing to buy into the company? Are people investing now at risk for losing their money if the Substack community support is so high that the company can raise 5 million+ off of them? In other words, if there are enough buyers, does the lower valuation really make any difference? Does it really mean that people will lose their money in the case of an IPO or merger/acquisition?
Hi William, Could you give some examples of companies that are "Hyper-growth software companies with >40% YoY revenue growth _that are already public_ are trading at an average of 8.1x NTM revenues" ? Thank you for your time.
From Guggenheim's latest software valuation report for February 2023: "Growth buckets defined based on CY22 revenue growth rate. Hyper Growth Software (>40%) includes AMPL, ASAN, BILL, BRZE, CFLT, CRWD, DARK, DDOG, GTLB, HCP, IOT, MDB, MNDY, NET, OKTA, S, SNOW, ZI, ZS."
If one takes the median ratio between Enterprise Value and NTM Revenue for those companies, it was 8.1x in the most recent report (which uses valuations as of Jan 31, 2023).
Those valuation multiples are down approximately 83% from where they peaked in Nov 2021, and roughly 70-75% below the levels when Substack raised the Series B in Mar 2021, as many others have now pointed out. Note that The Information, in its Creator Economy Newsletter yesterday, said:
"Of course, Substack achieved that valuation in the anything-goes days of startup fundraising, which ended in late 2021 when interest rates started rising. Since then, as we all know, asset values have dropped across the board." "Substack certainly deserves an award for fundraising chutzpah."
My main point is that it's fine to have chutzpah when you're negotiating against a sophisticated, well-capitalized investor like Andreesen Horowitz, but not when you're raising money from friends, family, or your own customers.
Thank you William! I appreciate you taking the time to explain the economic situation better.
I found this article from Goldman Sachs Asset Management (July 2022) that states,
"Hyper- growth software companies have seen their valuations decline by three-quarters from their November highs to the end of June 2022, to an average valuation of 8.0x next-twelve-month revenues. This is below the range seen in 2015-2020."
https://www.gsam.com/content/dam/gsam/pdfs/common/en/public/articles/2022/Growth-Equity-Recent-Dispersion-in-Growth-Equity.pdf?sa=n&rd=n
Can you share a link to the Guggenheim February 2023 software valuation report?
Datadog might be a reasonably good comparison: Q4 2022 revenue was $469.4M, up 44% YoY. This puts their revenue run rate at ~$1.9B, and their NTM revenue at roughly $2.2B.
As of this morning, they're trading at a $22B valuation, or roughly 10x NTM revenues.
If Substack had priced this round at 10x, fine. 23x though...that really doesn't seem right to me.
Even is Substack’s valuation is 75% lower, does it matter if there are enough investors who are willing to buy into the company? Are people investing now at risk for losing their money if the Substack community support is so high that the company can raise 5 million+ off of them? In other words, if there are enough buyers, does the lower valuation really make any difference? Does it really mean that people will lose their money in the case of an IPO or merger/acquisition?
Thread continued here:
https://on.substack.com/p/wefunder/comment/14056270