At DAN Fund we talk to a number of startups every day about Series A and B financings. We discuss valuation, revenue, and structure with these companies, and since May 2014 we’ve kept track of all this data. We do this to get a sense of where the market is, but keep in mind these aren’t the valuations and multiples at which deals are getting done, rather they are just the opening asking prices of the CEOs. Although imperfect, it’s interesting data to monitor and is valuable to observe trends. A link to the data which encompasses 459+ companies is below (company names removed to protect the innocent).
A few things stand out:
-When starting from Q2 2014 to today, the market looks strong. From the middle of 2014 to today, we show a median revenue multiple of 13.1x and median valuation of $9mm for 459 companies. Median monthly revenue was $59k.
-In the third quarter of 2015, the revenue multiple started to slip. From Q3 2015 to today, the revenue multiple is 11.7x across 229 companies.
-Since the beginning of 2016, the multiple has slipped a lot, the absolute dollar valuation has come down, and average monthly revenue is up slightly. From January 1, 2016 to today which encompasses 69 companies, the median ask for valuation is down to 8.3x revenue, the absolute dollar ask of valuation is down to $7.9mm, and the median revenue is up to $62,500 per month.
Everyone is talking about the venture market tightening and lower valuations, and indeed we’re actually seeing it in the companies we talk to. If you’re a founder that needs to raise money, it may be necessary to pull back on your valuation expectations. Keep in mind while it never hurts to ask for a strong revenue multiple or valuation, if you don’t get it it may not be that something is wrong with your business; it’s just the market.