Flat Is the New Up?

Market Musings from Promus Ventures’ Latest LP Letter

Mike Collett
Go Build


The infamous Alpe d’Huez — 21 bends covering 1120m of height gain over 14km

We thought we’d share some of our thoughts on the current private market environment, as featured in Promus Ventures’ most recent Limited Partner quarterly letter.

“If you don’t know where you are going, any road will get you there.” Lewis Carroll

Spring has sprung, and with it a host of headwinds.

The Fed has officially started raising rates, the yield curve is inverting, public growth stocks have been taken to the woodshed, oil markets are running amok and the CPI rose 7.9% which was the fastest pace of annual inflation in 40 years. Oh and Russia invaded Ukraine just to make things more complicated. Good times.

The recent drawdown in growth stocks has been jarring:

· EV/NTM revenue multiples for the public SaaS universe have decreased from a median of 19x in early 2021 to currently 9.5x.

· The top five stocks with the highest EV/NTM revenue multiples have decreased from a median of 80x three months ago to 33x today.

· All stocks reporting over 30% projected NTM revenue growth have decreased from a median of 41x to 14x today.

With the universe of SaaS stocks trading down 50% or more from its highs, and private growth companies pegging their past round valuations over the last 12–24 months to these higher multiples, future fundraising valuations will prove interesting.

Will private market valuations resume their remarkable climb in the face of the aforementioned headwinds?

I have received this question on two separate industry conference panels over the last two weeks. There is no private market premium that somehow insulates private market valuations from the reality of public market multiples. The private markets may come kicking and screaming, but there will be valuation ramifications and pain for those companies that fail to execute as they come back to the market to fundraise.

Instacart recently cut its valuation by 38% to $24 billion from its last round valuation of $39 billion one year ago. The company is granting stock using this new valuation in hopes of retaining current personnel and hiring new employees with more share units. Instacart will not be the last high-profile private growth company to cut its valuation. We do not at this time see a recession on the horizon, as some who watch the bond market are preaching, but market multiples will need to find their levels soon. Maybe “flat” will be the new “up” in the months ahead.

We still believe that growth is the holy grail.

We expect many later stage investors to cool off in paying wild multiples for growth rounds. We are starting to see signs of valuations coming down at the early stage. This is frankly a good thing for the venture market and we welcome the more healthy behavior. But growth is still the goal — those startups that continue to beat their projections at a higher rate than other comparables will continue to be rewarded with premium valuations even in difficult macro environments.

Note: EV/NTM multiples defined as enterprise value (defined as market cap plus debt minus cash) divided by next twelve months revenue, data provided by Clouded Judgment as of March 25, 2022

Promus Ventures invests in early-stage deep tech startups solving complex problems to advance everyday lives across the world. Some of Promus Ventures’ other leading portfolio investments include Rocket Lab (Nasdaq: RKLB), Whoop, AngelList, Mapbox, ICEYE, Bellabeat, Swift Navigation, Cobalt Robotics, Behavox, Spire (NYSE: SPIR), Isotropic Systems, Halter, Diligent Robotics, Safehub, Biocogniv and numerous others. Past exits include Kensho, Gauss Surgical, Figure Eight, Enview, June, Represent, Circulate, and HealthMode among others.

Recipients of this post are not to construe it as investment, legal, or tax advice, and it is not intended to provide the basis for any evaluation of an investment in any fund. Prospective investors should consult with their own legal, investment, tax, accounting, and other advisors to determine the potential benefits, burdens, and risks associated with making an investment in any fund.

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