Pushing for steep valuations is a mistake that most founders will regret.. You could get 2021 vibes if you look at recent data from Carta: ➡️ Seed: A staggering 50% of Seed-stage startups are being valued at $18M+. Usually with minimal traction and faint signs of product-market fit. ➡️ Series A: Half of startups post-Series A are being valued at $55M or higher. 1/4 even at $90M+. Validated PMF, but ability to scale business and org yet to be proven. Now the bad part: - Only ~15% of startups successfully graduate from Seed to Series A within two years - Merely 10% progress from Series A to Series B A high valuation might first seem like a win, but it creates a minefield of potential challenges: 1. As if expectations weren't already high enough, a steep valuation creates even more pressure to deliver. 2. By the time you reach Series A, you've typically: - Surrendered 20-40% of their equity - Accumulated $10-20M in liquidation preferences 3. With 98%+ of startups either leaving the VC path early or delaying their next round (sign for underperformance), your last round's valuation becomes a heavy burden. Acquirers will laugh you out of the room if you demand a 30x ARR for your cash-burning $2M ARR business. So you are left with two main paths: 1. Quick exit with little to no returns for you as a founder and your investors. 2. Keep grinding in bootstrapper mode, battling liquidation preferences for potentially years. Both not super appealing.
I agree with all the listed risks! However, this perspective might also help partially explain why 🇪🇺 Europe has struggled to deliver outcomes on par with U.S. big tech counterparts. I’m not suggesting that every founder should pursue a high-risk path - but a greater appetite for bold, ambitious moves could benefit the European ecosystem. Don’t you agree Dirk Sahlmer?
What do you think about 30 million usd seed round Wordware YC S24? Where do this kinda firms fit in the chart?
It would be useful to share what multiple these valuations are given at each stage.Is a $446M valuation fur Series D based on achieving $30MM in revenue and a 15x multiple?
I recently got asked to invest in a Series A SaaS company $55MM valuation……they had $1.2MM in ARR 🫠 Bad for founders and bad for investors.
Yep, better to stay conservative with valuations but also the amount of money you collect and spent. And try to keep the valuation up from round to round.
Steep valuations sound tempting but can backfire hard. It’s all about balancing ambition with reality, huh?
I agree. That model only works if you can sell your company before raising the next round and even then. Dilution levels. Yikes. Unless there are clear unmistakable signs of becoming the next Google or Facebook (1/1000 of a percent). Don’t do it!
Nick Stickland Crispin Futrille - useful info for percolation and your own journey. Enjoy
This is awesome material Dirk Sahlmer ! Thanks for sharing!
Founder & Managing Partner | Celeborn Capital
3dGood share, Dirk. Some nuances to consider, given investor and buyer interests often diverge from those of founders: Minimizing dilution: Founders pushing for higher valuations allows them to retain more ownership, which results in greater economics for common at exit. Governance: Favorable terms (e.g., board control) mitigates risks, even with stretched valuations. Liquidation Preferences: Investors have inherent protections built in via liq prefs; founders do not. The majority of investor returns come from just a couple of investments per fund, but for founders, a great portion of their life’s work is tied up in their venture. They should fight to keep as much of it as possible, so long as doing so doesn’t sink the company by making an exit impossible. Market Dynamics: Competitive nature of funding often drives valuations, especially in hot sectors. There are adverse selection considerations at play ifsetting valuation of asks too low. Balance is key… pushing for strong valuations without setting unrealistic expectations. Valuation should align growth potential and market realities. And founders should try to push for as founder friendly a deal as they can get because investors and buyers sure are.