Startups are asking for 10x revenue

We keep track of the number of Series A startups we talk to each quarter as well as data about the round they’re trying to raise including median MRR, requested valuation, size of round, and revenue multiple.  Below is the data we have collected from our conversations with these startups over the past 5 quarters. 

  Number of Monthly   Size of  Annualized Rev
Quarter Companies Net Revenue Pre/Cap Raise Multiple
Sep-15 39 $75,000 $10,000,000 $1,500,000 9.17x
Dec-15 159 $59,000 $9,500,000 $2,000,000 13.23x
Mar-16 81 $67,000 $9,600,000 $2,000,000 10.16x
Jun-16 209 $69,833 $10,000,000 $1,500,000 9.62x
Sep-16 127 $85,000 $10,000,000 $2,000,000 9.63x
           

A few observations:

 

-The monthly recurring revenue for the typical Series A company has on median ranged from $59k to $85k over the past 5 quarters. 

 

-The median valuation companies ask for has consistently been about $10mm, and the revenue multiple seems to have stabilized at ~10x ARR over the past 3 quarters.

 

-The number of companies whose data we recorded has varied widely from a low of 39 in Q3 2015 to a high of 209 in Q2 2016.  We do talk to more companies than that each quarter, but many are too far outside our focus to record, may be too early, or could be eliminated for some other reason (for instance perhaps they’re outside the US/Canada).    

 

While it’s interesting data to monitor, it is imperfect as sometimes we forget to record companies that we should.  It’s also of limited value: the valuation requested is rarely the valuation that a company will actually receive.  Nonetheless, we do believe this data is valuable to look at as it gives us a sense of where entrepreneurs think the market for startups is trending: when they ask for high valuations, founders believe the market is hot whereas when valuations come down, it indicates confidence in the funding environment has declined.  In the current environment, we do believe our data is reflecting stability in the startup environment, given the multiple has been consistently hovering at 10x over the past 3 quarters. 

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