Unlisted tech valuations

We’ve previously written about the valuation of technology stocks as being way too high. And we’ve often referred to the famous quote from the former CEO of Sun Microsystems, Scott McNealy, where he asked investors, “What were you thinking?” when they bought Sun stock for 10 times its revenue. (The stock subsequently fell 85%.)

Well, ten times revenue is tame compared to the valuations that tech stocks have recently achieved in private markets. In 2021, the median late-stage valuation for SaaS deals reviewed by IVP, a Silicon Valley venture capital firm, was 114.3 times revenue. Those valuations assume that revenues will grow by double-digit percentages for years to come and costs won’t. This is about eight times the equivalent valuation in 2017, which was merely 15 times.

It’s inconceivable that something happened in the four years to justify the increase in valuation. And while some companies might achieve the stellar growth rates required to justify these prices, we can’t believe that the entire software as a service sector will do so.

We will continue to avoid that market.

New data shows the extremes of valuations in private markets tech stocks.
Source: IVP via Pitchbook

You can read more here: Even startups with lots of runway probably can’t grow into those sky-high valuations | PitchBook.

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Please note that past performance is not a reliable indicator of future performance.

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