The Trigonometry of (Collapsing) Market Multiples

Gus Tai
Gus Tai
Feb 17, 2016 · 6 min read
Thanks, Joe!
Thanks, Byron!

The role of the arctan

Fitting an arctan through the centers of the downturns

What might this mean?

The main takeaway is that you shouldn’t expect former multiples to return. The 2013 peak isn’t actually surprising. Rising multiples are symptomatic of emerging sectors which grow with an arctangent shape. These peaks come but they don’t return — until another discontinuity or innovation causes the cycle to start again. Once past the midpoint of the curve, capital going forward becomes increasingly more expensive.

Being mindful in trying times

So what is going to happen next? For those who ask: I suggest that rather than yearn to know, we focus on what we can know. And that is, what is happening right now. What’s poorly understood is that seeing reality clearly is a competitive advantage. In these shifting times, I would counsel you to ask, “What do I see clearly?” and “How do I know?” Then triangulate with others and trust your conclusions. I do sense if you genuinely ask and answer these questions, you’ll know. And you’ll be served well.

Trinity Ventures

A collection of posts from the Trinity Ventures partnership and portfolio. Learn about the firm at www.trinityventures.com.

Gus Tai

Written by

Gus Tai

An optimistic realist (or was that an accidental tourist?)

Trinity Ventures

A collection of posts from the Trinity Ventures partnership and portfolio. Learn about the firm at www.trinityventures.com.