Do PE Acquisitions of Public Startups Imply We've Hit a Pricing Bottom?
Tomasz TunguzVenture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Do PE Acquisitions of Public Startups Imply We've Hit a Pricing Bottom?
This year, private equity firms have acquired five public software companies, totalling $38b in value. Seven months into 2022, these figures exceed last year’s totals, something I wondered about last month. Since these transactions’ details are public, we can use them to infer how the private software market values companies.
In the last decade, a software company’s revenue growth correlated most highly to its valuation multiple. In this small data set, growth rates don’t correlate to multiples. Neither does profitability (net income margin), which clocks in at -0.13. I wondered if the Nasdaq’s recent rebound might have influenced these numbers: strong Q1, crash in Q2, & then some resurgence of late. But no relationship exists between the Nasdaq’s price level & multiples. Zendesk & Anaplan announced their acquisitions within days of each other & their multiples bound the outer edges of the range: 5.1x & 13.4x. Curiously, free-cash flow margin correlates to forward-revenue/EV multiples at -0.996. A perfect negative correlation. The more free cash the company produces, the lower the acquisition multiple. I’m at a loss to explain this relationship. Perhaps a reader who understands the PE model more deeply will write in to explain it. However, we can glean some insights. The data suggests the market has attained a pricing floor. Multiples bear no correlation to the Nasdaq’s behavior, company growth rates, & profitability. The underlying business must have some base value which is the where the market has cleared these transactions. Software companies growing between 10-35% trade at 5-13x forward revenues. I can’t ascertain how record fundraising inflows into private equity funds might bolster these prices, but the billions burning holes in PE wallets must impel some activity. As 2022 concludes, transactions like these will inform late-stage venture prices. These figures will fill the comparables sections of investment memos. |
Older messages
Messaging: the Bottleneck for Web3
Thursday, August 4, 2022
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Messaging: the Bottleneck for Web3 Messaging has
The Math Behind Starting a Successful Software Startup
Tuesday, August 2, 2022
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. The Math Behind Starting a Successful Software
How Much Should You Expect Your Startup to Slow in 2022?
Thursday, July 28, 2022
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. How Much Should You Expect Your Startup to Slow in
Office Hours with Bill Binch: Structuring Sales Teams for Success
Thursday, July 28, 2022
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Office Hours with Bill Binch: Structuring Sales
The Health of Cloud Spending in Mid-2022
Tuesday, July 26, 2022
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. The Health of Cloud Spending in Mid-2022 I'm
You Might Also Like
Investor relations going sour?
Monday, April 29, 2024
We dive into the results of our latest survey, IBM goes to court and unexpected UK royalty in Dubai. View in browser ITA We make future final Good morning there, Wow, founders are going through a
📈 What’s getting funded now
Sunday, April 28, 2024
The Lightcone crew dives into the trends they're seeing from the latest YC batch. | This Week at YC April 28th, 2024 What a week! The deadline* for Summer 2024 applications was on Monday, which
Mailbob, Athina AI, Style AI, and Formula Wizard
Sunday, April 28, 2024
WebsiteGPT to make fully customizable websites in seconds BetaList BetaList Daily Mailbob Exclusive Perk publish and manage your email newsletter with ease Athina AI Exclusive Perk Monitor and Evaluate
Initiator Creator - Issue 140
Sunday, April 28, 2024
Initiator Creator - Issue #140 - ( Read in browser ) By Saurabh Y. // 28 April 2024 Presented by DesignThingy This Week's Notes: Directionless bull All our efforts get wasted when we get stuck
Knowing is not enough
Sunday, April 28, 2024
you must apply , The Start Your Ecommerce Business 2024 was a huge success thanks in part to you. We hope you left feeling inspired and equipped with actionable strategies from our expert speakers. But
#177 | Request for Startups, Real Estate Tech Themes, & more
Sunday, April 28, 2024
April 22nd–28th | Insights from Crossbeam, Altimeter, Ansa, Scale VC, and others ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
The $4M SaaS nobody knows about
Sunday, April 28, 2024
Starter Story's Sunday Breakfast #90 ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏ ͏
Twitter’s former Head of Product opens up: being fired, meeting Elon, changing stagnant culture, building consumer…
Sunday, April 28, 2024
Kayvon was the longest-serving head of product at Twitter and was GM of Twitter's consumer division until the platform was acquired by Elon Musk. He originally joined Twitter in 2015 through the
Parea AI, Notion to Calendar, and VisualInvoicer
Saturday, April 27, 2024
Simplest way to create invoices BetaList BetaList Daily Parea AI Exclusive Perk Developer tools for evaluating, testing and monitoring LLM-powered apps. Notion to Calendar Put your Notion Databases in
From 0 experience to 160 orders for her business
Saturday, April 27, 2024
Read foundr+ student wins , Here at Foundr, we can't get enough of our student wins, both big and small. (These student wins are just the tip of the iceberg when you join foundr+.) Whether it was