We talk to a lot of companies every quarter about leading or participating in their Series A rounds. For the companies we find interesting and relevant to our strategy, we record their most important high level statistics including valuation, size of round, revenue, burn, and growth. We therefore have a very good feel for the ‘Ask’ by Series A entrepreneurs across the nation. The statistics going back to Q3 of 2015 are below.
|Number of||Monthly||Size of||Annual Rev|
|Quarter||Companies||Net Revenue||Raise||Pre/Cap||Multiple||YOY Growth||Burn|
A few observations.
-In Q4 2016, we recorded the data from 153 conversations with entrepreneurs across the nation. This was slightly above our historical quarterly average of 128 companies per quarter. 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).
-Of the 153 companies, the median monthly net revenue was $75k, median size of the round was $2mm, and median pre-money valuation was $9,625,000 for an annualized revenue multiple of 9.72x. That revenue multiple of ~10x is roughly in line with what founders have been asking for since Q1.
-We just started recording year over year growth and monthly burn. As you can see, for the 153 companies we recorded the median was roughly 100% and -$57,000, respectively. Note that the companies we talk to are generally in underserved geographies such as the Midwest or Southeast, and we avoid San Francisco/the Valley where valuations and burn tend to be much higher.
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 because 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.
Given that 10x has been the multiple for the past three quarters, it does seem like the market has settled on that figure. Barring a number of high profile exits or major blowups, we expect the median valuation ask to be 10x revenue going forward.