So Battery Ventures has a new detailed report on The Open Cloud you can dig into here.
There’s a lot of great data in the report, but one analysis helped answered a question I’ve been wondering the past 12-18 months: Are start-up actually more overvalued today than at the peak of Cloud mania in 2021?
The answer in my experience is actually Yes. Because valuations are as high as ever, and yet … public software multiples are far, far, far lower than 2021.
And the Battery Ventures data bear this out:
What you can see above is that yes, start-up valuations for the hottest start-ups have come down somewhat since 2021, from 39.0x in 2021 to 23.4x today. But public multiples have fallen -66% (!) from 21.2x to 7.3x for top Cloud companies.
And that means VCs are now paying a 3.2x premium to public valuations to get into hot deals, vs. 1.8x in 2021 and 2.1x in 2022. That’s a lot more expensive.
I see it across the SaaStr Fund portfolio, where anyone with top decile growth is basically getting the same terms as 2021 — and higher for earlier stages. And you can see it in AI Mania. Where 100x, 200x, even 300x ARR deals are the norm for the hottest deals.
We’ll see. But my view has been that while AI spend is a way of innovation like we haven’t seen since mobile exploded, at the same time, there is only so much budget in the end.
Battery does believe it’s possible AI can 4x the spend on software and software infrastructure by “stealing” another $3 trillion in spend from service and labor displacement. This is another super helpful chart summarizing that potential:
Certainly many top VCs and Sam Altman and others see this happening very soon. I see it happening a bit myself in classic B2B. You can see folks like Dialpad accelerating because of AI spend replacing humans even right now, going from $200m ARR last year to over $300m ARR already this year:
But to justify the highest start-up VC premiums ever, AI really has to deliver a lot, lot more growth for SaaS and Cloud start-ups. A lot more than we’ve ever seen before.
We’ll need some of that additional trillions in overall spend to make the math pencil out. There’s just not enough IT budget otherwise.
We’ll see!
A related post here:
