What Does the Post Crash VC Market Look Like?
Hm. Thing is as profitable big tech companies get larger and the TAM of tech sectors grow it makes some sense that early stage valuations would increase.<p>This is both because there is more opportunity for a company to scale, but also because when you have several trillion dollar tech companies out there happy to acquire innovative tech companies then multi billion dollar exits become much more feasible. Companies like Microsoft are making close to $100b a year today and they have to put that money to work somewhere. Google&#x27;s digital ad business was big relative to the size of the internet in 2010, but it was absolutely tiny in comparison to today. And it&#x27;s not just the size of the digital ads market, but everything - digital audio&#x2F;video content, ecommerce, hosting, social, productivity tools, etc. All companies operating in tech sectors today have far more potential than they did in 2010 if they execute well.<p>So no, in my opinion 20x EV&#x2F;sales isn&#x27;t that crazy for a good SaaS company. Profitable tech companies at scale with high gross margins typically trade at 5-10x sales because if you can achieve operating margins of say 30-40% (which isn&#x27;t uncommon for SaaS companies) then you&#x27;re basically trading at a 20-30x projected earnings multiple. Which yes is high compared to the historical market average (15-20), but if you&#x27;re also growing at 50% YoY and have steady recurring revenue streams then that&#x27;s not a hard multiple to grow into at all.<p>Perhaps what was stupid about 2020-2021 valuations was that a lot of investors assumed that the extremely low interest rates and accommodative monetary policy was going to persist. Some companies did trade at valuations very hard to justify without the low interest rates and pandemic-era tech growth rates (Zoom, Shopify, Peloton, etc).<p>I&#x27;m sharing because I seem to have a fairly controversial take on this and I don&#x27;t know why. It seems to me everyone has just forgotten that companies like FB traded at sales multiples in the mid-teens for years after they went public and they haven&#x27;t been bad investment at all. It depends on the company obviously, but a company growing at 50% YoY with 80% gross margins would be ridiculously cheap at a valuation any less than 10x sales based conservative earning projections.<p>In my opinion most of the reason for this crash is just macro headwinds. Tech companies saw a huge growth boom in 2020-2021 which has now reversed. Interest rate risks have also been dragging on public valuations and this caused a drop in sentiment for tech investments generally. My guess is that in a couple of years once we&#x27;re through this period tech valuations will trend back to 2018-2019 levels. But I guess we&#x27;ll see.<p>Finally this current crash is hardly isolated to tech. Companies like Fedex, Starbucks and Nike have all seen ~50% valuation declines from their peaks this year.