Let’s be clear, 2021 was crazy:
* SPAC of billions with no revenue
* the multiplier magically triples
* Fintech equals 80% GM with 10% GM
* #5 #1 in the market. got the same premium as
* Growth stage is seen as free money
* Seed VCs were bought versus sold in the $3B-10B round
— Jason B. Kind✨ Lemkin (@jasonlk) September 28, 2022
There’s a lot of talk these days about what’s going on in enterprise – and there should be. The industry has turned on its head, as we went from private 100x ARR deals in 2021 to public SaaS companies trading at an average of 5x ARR in 2H’22 and at an all-time low for the past 6 years. That’s a massive change.
This Week in Enterprise Software: Top 10 #mother-in-law #Cloud Multiplier as of today’s market close. The average multiplier fell below 5x at market close for the first time since 2016 (when it briefly dropped below 5x) pic.twitter.com/QZ605lMswz
— jamin ball (@jaminball) 14 October 2022
And with that, the enterprise market has clearly slowed down. Parts of the growth market have almost completely stopped. The IPO window has effectively closed. Not really, but at today’s prices no one is ready for an IPO.
But let’s go back a bit… where are we really? I really like the latest CB Insights data because we can use it to simplify a lot of the complexity of the markets:
First of all, yes the enterprise has indeed collapsed. Funding on a dollar basis declined an astonishing 54% per CB Insights, and deals are down 19.5%. It makes sense. With unicorn rounds being almost non-existent, the largest rounds are on hold in most cases. However, smaller seed rounds are still happening, albeit with lower valuations.
You can see that sharp and sharp drop from the Q4’21 peak here:
It looks especially dramatic when you zoom in only in late 2021 and 2022:
But second, really, in many ways it looks like we’re back in the enterprise at the beginning of 2018-2020. Back before covid crazes in enterprise. Let’s look at 2018-2020. Things were really one of a kind in the enterprise… in line with the entire pre-2018 lockdown period. Number of deals with constant capital. Looked at this way, the end of 2020 and 2021 were really just an anomaly:
This whole pre-covid period looks flat
Looks like we’re back there pic.twitter.com/NRLeKt4PMf
— Jason B. Kind✨ Lemkin (@jasonlk) 14 October 2022
Are we right back where we were in the enterprise before the pandemic? Maybe, more or less. Yes, inflation and interest rates are insane for now, and we do have some recession risks, even with near-record low unemployment. And yes, there are many hot startups that are picked up on crazy valuations that are stuck and can’t pick up again. But in SaaS, we can come back in the future. Where $1B is hard to get out of, $3B IPOs are tough, and Decacorns are a rare breed indeed. And where the enterprise is strong in SaaS, but not on crazy overdrive like in the 2H’20-early Q1’22. It just makes sense. We can more or less be back where we would have been without Covid.
i miss 2021 pic.twitter.com/QQjd7P7Kw0
— Jason B. Kind✨ Lemkin (@jasonlk) 7 October 2022
SaaS is growing well, with good tailwinds, and the best are growing faster than ever. But at a time when the SaaS revenue multiplier is on average around 10x for good startups and 5x on average for public companies.
It feels like the world we live in again.
CB Insights full report and best sources Here,
10/ I’ll dig into the Q3’22 data a bit more, but for those interested in all the graphs/data from above, feel free to grab the 262 page State of Venture @CBinsights
M&A activity in tech has also cooled down as you’ll see (no surprise there) https://t.co/yxSCwwBL3s
— Anand Sanwal (@asanwal) 14 October 2022
Published 15 October 2022