Tomasz Tunguz - The Inflationary Forces in Startupland
Tomasz TunguzVenture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. The Inflationary Forces in Startupland
Over the last ten years, the 75th percentile post-money valuation of a cloud software or infrastructure company has grown 11% annually. In 2021, the post-money valuation has spiked 60% from $48.1m to $77.0m. While not as hyperbolic an inflation rate as copper or lumber, the price trajectory of early stage cloud startups does result from a similar supply demand/imbalance. And this isn’t the first time annual valuation deltas have touched this magnitude. I’ve plotted the post-money valuations for US cloud and infrastructure companies above for the Series A. Each of the three quartiles have inflected in the first 5 months of this year. The seed market compounds at a higher rate over the same decade at 15%. But it hasn’t soared like it’s older brother in 2021, preferring a more consistent path. If we plot the annual growth rates for the 75th percentile Series A, we observe the expansion in valuations occurs in fits and starts. 3 of the 11 years recorded 40%+ growth. 3 of the years saw declining prices. Perhaps these prices are tied to blockbuster IPO markets. 2012: Facebook. 2014: Alibaba. 2021: Snowflake (late 2020), UIPath, Airbnb, Doordash, Coinbase. Or there’s always the definitional argument to be made: the Jacobs ladder in which Series A is the new Series B and seed is the new Series A. But there’s more to this trend than just nomenclature change. The market feels different. Investment processes last a few days. Preemptive rounds have become a norm. Straight to Series A (skipping the seed) isn’t uncommon, particularly in infrastructure or open source commercialization efforts. Pricing rounds on multiples like public market investing. Vibrant secondary markets. Index investing and the entrance of hedge funds. That’s the demand side. But the demand side of the market has evolved just as much. Founders' sophistication has increased in the US - and also globally. Many run auctions effectively, and pick the right partner conducting similar diligence to the investors themselves. Rather than burn dictating when to raise capital, founders elect to raise when inbound interest arrives, or immediately before launching to sell the dream rather than the metrics, or at other strategic inflection points. The conversation of how long capital will last, which was ubiquitous is mostly debating during seed rounds, if at all. This has as much to do with novel GTM strategies, better product-market fit, and the consequent greater leverage in businesses, as does the demand side. A few years ago, raising a large venture round anointed a winner. Balance sheets swelled to permit management teams offensive and defensive options. Today, large rounds and unicorn valuations are (and this might sound jaded) expected, normal, part of the game. As often happens in financial markets, players find an edge, exploit it, and in time the players copy it in aims of achieving the same success. Is it good for the market or bad for the market? That’s the wrong question. It’s tough for buyers and great for sellers. Founders have access to more capital, faster, and more consistently than they ever have. The market rewards those with big ideas and momentum, earlier and earlier. The game on the field has changed in the last year. The data is a lagging indicator, but it does show how quickly and how significantly pricing has skyrocketed, the effect of evolution in both supply and demand in the venture capital marketplace. |
Older messages
The One Force that Will Govern How We Return to Work
Monday, May 3, 2021
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 One Force that Will Govern How We Return to
Never Raising, Always Raising
Friday, April 23, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Never Raising, Always Raising Startups used to
How to Cut a Path through the Jungle of Regulatory Compliance
Monday, April 19, 2021
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 to Cut a Path through the Jungle of Regulatory
Covid's Impact on Software Sales Efficiency
Thursday, April 8, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Covid's Impact on Software Sales Efficiency
Would You Work for This Person?
Monday, April 5, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Would You Work for This Person? Would you work for
You Might Also Like
🚀 Virgin To Face Delisting
Friday, April 19, 2024
Plus Q1 earnings kick off, SpaceX exec launches a new VC firm, Tether invests $30M in $SATL and more! The latest space investing news and updates. View this email in your browser The Space Scoop Week
10words: Top picks from this week
Friday, April 19, 2024
Today's projects: Spheria • Narration Box • OnTheFly • AnyCheese • Dumbbe • HASTY • lockrScan • IdeaAize • Mailmo • ProSolvio • GigHunterBot • WeekToDo 10words Discover new apps and startups in 10
[Replay] Building a million dollar beauty brand
Friday, April 19, 2024
Free summit replay extended Hey - great news! We've extended the summit replay for 24 more hours. Watch it here free >> And, I want to highlight one of the inspiring founders, Alicia Scott.
Put it on paper
Friday, April 19, 2024
In case you missed it, here is the full recording of the 668 person workshop I co-hosted yesterday "how to build products of the future". It's completely free to watch here. Put it on
7 prompts for your B2B company’s next LinkedIn post
Friday, April 19, 2024
Plus, tips, news & Buffer updates for your social media journey Image Hey folks 👋🏾 It's been an interesting week in social, with the launch of TikTok Notes (their take on a photo + text
Challenges of Offering an API — The Bootstrapped Founder 313
Friday, April 19, 2024
When you sell access to an API, what should you keep in mind? How would you protect your data but still make it easy to use?
12 hours to go! 🐣
Friday, April 19, 2024
Catch the super early bird rates before they expire! View this email in your browser. 1200 x 380 (Desktop & Tablet) (8) Hey there, There are just 12 hours to go before Summit Summit ticket prices
Why I Switched My Blog to Ghost (and Why You Might Love It Too)
Friday, April 19, 2024
Tired of slow, clunky blogging platforms? I was too! Find out how Ghost changed my blogging life (and my company!), and why it might be the upgrade you need. Salehin Khan Salehin Khan Why I Switched My
Latvia's startup financing gets creative
Friday, April 19, 2024
We visit Riga to explore Latvia's tech scene, layoffs at Stability AI and why climate tech's latest phase will be built on debt. View in browser Notion flagship logo final Good morning there,
How Meta is paving the way for synthetic social networks
Friday, April 19, 2024
Five ways of thinking about Llama 3, its latest large language model Platformer Platformer How Meta is paving the way for synthetic social networks By Casey Newton • 18 Apr 2024 View in browser View in