Pre-IPO Profits

Later-Stage Valuations Are Getting Out of Control

Later-Stage Valuations Are Getting Out of Control
By Adam Sharp
Date April 20, 2021

I’ve been invited to a few deals lately with mind-blowing valuations. I was being asked to invest in SaaS (software as a service) businesses with $1 million of revenue. They were showing about 150% growth rates. Yet they were being valued at nearly $250 million. 

This reinforces my view that we’re in the later stages of a pretty sizable bubble. 

Of course, there are still good startup deals to be found — mostly at the earlier stages. The valuations there aren’t ridiculous. And if you can find good deals outside of San Francisco, even better. 

But established Silicon Valley based software startups are almost uninvestable at this point. Sure, some will provide good returns. But at the valuations people are investing at, there’s almost no room for error. The difference between investing at a $25 million valuation and $150 million valuation is huge. And some deals I see today at $150 million would have priced at around $25 million three years ago. 

So I continue to steer clear of most later-stage deals, especially the ones at stratospheric valuations. 

To be clear, it’s often a good sign when a company’s valuation shoots up dramatically from round to round. But what I’m seeing now goes way beyond that. This is getting into bubble territory. 

The valuation bubble is even worse in the public markets. Look at the valuations of Coinbase, Snowflake, Tesla, etc. All good companies, all ridiculous valuations.

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