There’s Epic Inflation in Silicon Valley'

Jason Lemkin

Last night, David Hornik of August Capital was kind of enough to invite me to speak with him on a Technology and Law class at Stanford.  After the event, an entrepreneur I had been emailing with but hadn’t met yet came up to me.  While his company is in a different space, I was struck with in many ways how similar its pre-launch operational and timing challenges in 2012 are to EchoSign circa 2005.

The biggest difference?  Their pre-product pre-money was $12m in ’12.  Ours was $6m in ’05.  100% inflation, in some sense.

So I started thinking of all the inflation I’ve been observing lately:

  • Seed/Series A valuations seem to have grown about 100% since 2005.  Today, if you’ve got a team with some previous success, the pre-money of seed/A rounds are all double digit millions.
  • Come to think of it, Series C valuations have grown about 100% as well.  Today, hot companies are doing rounds as 10x next year’s ARR.  Back in the day, it was more like 6-8x this year’s GAAP revenues.
  • The rent on our old office in downtown Palo Alto since 2005 has grown from $3.00 to $6.50 NNN per month, or more than 110% rent inflation in downtown Palo Alto at least since ’05.  Exact same office.  This is pure identical-asset inflation, like tracking the price of milk.
  • Engineering salaries have also grown a lot.  On the ‘low’ end, junior engineers salaries seem to be up 20-30%, but with rockstars, it seems more like 40-50% on the cash side.  More relevantly, on the equity side, top engineers at an early stage seem to get about 100% more equity than in 2005.

Yes, the Cloud has made some things cheaper.  But on balance everything else is so much more expensive, it seems like start-ups can actually be almost 2x the price to get to a similar amount of time.  I really wonder what you can do in SaaS these days on a $2m Series A round.  It was hard enough back in the day.

The good news?  The SaaS world is 10-20x bigger than it was in 2005.  So, in a sense, that’s deflation.  It means companies can get bigger, faster, justifying the inflation on the hard costs.  So on balance, I think it’s a good deal.  People, offices, companies — they’re all worth more if the markets and opportunities are much larger.

But AWS, Heroku, and all the rest apart — sure that’s cheaper — but all other fixed costs seem to have massively inflated since 2005.  Many have basically doubled.

Published on October 4, 2012
  • What you’re describe might be the result of social networking tools creating high demand for a small number of deals that are blessed by optimally networked indiividuals. Networks like and techcrunch create automated investment dynamics with a deep pool of money chasing the deals that get the gold stamp.

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