How VCs Value Rainbow Foals in 2022

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2022-06-22 18:00:09

When Aileen Lee published “Welcome to the Unicorn Club” - the article that coined the word unicorn for a $1b startup - the average public SaaS company commanded a market cap of $1.5b.

I remember thinking a $1b M&A or IPO was so rare an investor might hope to achieve it once or twice in a career. Fewer than 15 SaaS companies traded on public exchanges then. With at least 20 firms and several partners per firm chasing unicorns, upstarts faced stiff odds.

If you were to read a memo from that era, you might have seen a table resembling the one above. It shows the potential return multiple from Seed to Series D at the median post-money of the era spanning 172x to 5.6x depending on the round.

Within five years, the median public SaaS market cap exploded from $1.5b to $9.8b in 2021. The return potential 10xed. The largest startups kissed $100b in market cap and higher.

Re-running the multiples math for today, return projections for the typical growth round collapsed. Series Cs dropped from 11x to 5.3x. Series Ds cratered from 5.6x to 1.9x by 66% - which is inline with the public market drop.

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