Pre-IPO Profits

San Francisco Startup Valuations Continue to Balloon

San Francisco Startup Valuations Continue to Balloon
By Adam Sharp
Date March 16, 2021

I’ve been writing about rising valuations for a while now. But this week, I saw a deal that was so crazily priced, I just have to write about it again.

This young San Francisco-based startup had about $700k in annual recurring revenue (ARR). It was a B2B Software-as-a-Service (SaaS) product — limiting it to basically just a handful of customers.

The valuation on the deal was $72 million post-money! Yes, the company clearly has potential. But at that valuation, investors are betting on a very high probability of a huge success. And the company is just getting started. 

We appear to have reached a point in this bubbly market where pricing madness is increasingly leaking over into private deals. In my view, it’s going to be very hard to make money in the long run investing in seed-stage companies at $70M+ valuations. 

I continue to invest mostly in deals outside of the San Francisco Bay Area (SFBA). Startup valuations are far more reasonable beyond this hotbed of venture capital activity. There are simply too many VCs competing for too few quality deals in that area. They’re bidding prices up to insane levels. 

I’d much rather look for promising deals elsewhere. The only San Francisco-based deals I’m investing in these days are early-stage companies that are outside of super-hot areas like SaaS. 

I’ve seen a few interesting deals coming out of Canada recently. I plan to continue to look for more deal sources there as valuations are far more reasonable north of the border. Barney Pell was one of my favorite syndicates with great Canadian deal flow (still is) — but he’s only had one syndicate deal in the last 12 months. 

I’ll let you all know as I find more quality syndicates offering deals outside of the SFBA.

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