Just how deep is the decline in venture investment in the fourth quarter of 2015?
In SaaS, I believe roughly in Q4 we went through about a 50% multiple compression. I.e., valuations sort of fell by half. (Although it’s hard to see this from the headline #s around amounts raised, for the reasons noted below.)
And as part of that … VCs slowed down a lot. They didn’t rush as quickly.
But … there’s still tons of capital out there. Every VC firm has raised a new, larger fund in the past 6-15 months. It’s just a lull.
More importantly, what really happened is the bar went up for the same valuation at each phase.
For example, in the summer, if you were Hot … to do a Hot SaaS Series A, you might need $1-$1.5m ARR growing 15% Month-over-Month or faster, to raise say an $8m+ Series A.
As you can see on Nasdaq, things peaked at a local maximum around July:
And then … things got choppy.
So today, you might need $2.5m ARR to achieve the same valuation you could have gotten in July at $1.25m ARR. You’ll still get the $8m round done, at the same pre-money … you just may need as much as 2x the revenues to get that valuations. And it may take a little longer. Because VCs feel like they have more time.
That a 50% multiple compression in the early-ish stage VC markets for SaaS. And as a cohort, public market comps have fallen over that time frame as well.
The multiples may re-expand at any time, however 🙂
And … look at the #1 market cap in SaaS … Salesforce. It’s done just fine since the summer:
So some of this drama is a little made up IMHO. At least a little tiny bit of it.