When Aileen Lee printed “Welcome to the Unicorn Membership” – the article that coined the phrase unicorn for a $1b startup – the typical public SaaS firm commanded a market cap of $1.5b.
I bear in mind considering a $1b M&A or IPO was so uncommon an investor would possibly hope to realize it a couple of times in a profession. Fewer than 15 SaaS firms traded on public exchanges then. With not less than 20 companies and a number of other companions per agency chasing unicorns, upstarts confronted stiff odds.
From 2007 to 2016, $1.5b marked the upside case for many VC software program and infrastructure funding memos.
2015 Return A number of by Spherical
|Spherical||Put up, $m||Return A number of at $1.5b|
If you happen to had been to learn a memo from that period, you may need seen a desk resembling the one above. It reveals the potential return a number of from Seed to Sequence D on the median post-money of the period spanning 172x to five.6x relying on the spherical.
Inside 5 years, the median public SaaS market cap exploded from $1.5b to $9.8b in 2021. The return potential 10xed. The most important startups kissed $100b in market cap and better.
Return projections skyrocketed. Competitors fueled a surge in valuations.
Then the inventory market’s fall reversed the impact. Imply market cap halved to about $4.5b.
2022 Return A number of by Spherical
|Spherical||Put up, $m||Return A number of at $4.5b||RM at $1.5b (2015)|
Re-running the multiples math for in the present day, return projections for the everyday development spherical collapsed. Sequence Cs dropped from 11x to five.3x. Sequence Ds cratered from 5.6x to 1.9x by 66% – which is inline with the general public market drop.
The extra market caps on unicorns compress, the higher the downward stress on rainbow foals’ valuations.
The silver lining: the median public software program firm in 2022 is thrice as useful as in 2015, which suggests valuations ought to settle larger than that period.