Michael Ho’s Post

Valuation multiples step down at each new round And that’s completely normal… Last week my post on valuation multiples took off and there was a lot of focus on how fast multiples are dropping (because they are) But I think it’s also important to remember that these step downs are normal Seed stage will always have the highest multiples because investors are paying a premium for future (unknown) growth expectations Series A sees the biggest drop because it’s the first time VCs get to see if those future growth expectations are actually coming true But as long as your revenue stays on the venture scale path → your revenue multiples will keep dropping → but your overall valuation will rise So I think it’s important to be clear on those venture scale expectations: → once you hit $1M ARR → can you get to $100M ARR → in 7 to 10 years? That basically means that once you hit $1M ARR, you’re growing at 10% month over month for the next 24 months straight before starting to slow down Not every company will get there - and that’s okay As long as you understand why those early valuations are artificially high and don’t over capitalize yourself you’ll always have options -- ♻️ Repost to help a founder in your network Click 'visit my website' at the top of this post to register for my free 7 term sheets training session on how to get multiple term sheets from VCs

Valuation multiples step down at each new round And that’s completely normal… Last week my post on valuation multiples took off and there was a lot of focus on how fast multiples are dropping (because they are) But I think it’s also important to remember that these step downs are normal Seed stage will always have the highest multiples because investors are paying a premium for future (unknown) growth expectations Series A sees the biggest drop because it’s the first time VCs get to see if those future growth expectations are actually coming true But as long as your revenue stays on the venture scale path → your revenue multiples will keep dropping → but your overall valuation will rise So I think it’s important to be clear on those venture scale expectations: → once you hit $1M ARR → can you get to $100M ARR → in 7 to 10 years? That basically means that once you hit $1M ARR, you’re growing at 10% month over month for the next 24 months straight before starting to slow down Not every company will get there - and that’s okay As long as you understand why those early valuations are artificially high and don’t over capitalize yourself you’ll always have options -- ♻️ Repost to help a founder in your network Click 'visit my website' at the top of this post to register for my free 7 term sheets training session on how to get multiple term sheets from VCs

Trick question - does a Series A always follow your Seed round? ❌ The answer is NO in most cases At least that's what the data from Peter Walker and Carta is showing → 42% of Seed rounds were bridge rounds in Q1 → Only 15% graduate to a Series A in <24 months Which is down from the 31% graduation rate in 2018 and 40% in 2020 The bar is higher now and all of these seed stage companies failed to show enough progress to unlock their Series A and had to raise an extra round - with extra dilution 😞 And this all gets extra tricky when Seed to Series A also sees the highest valuation multiple drop across all of the rounds... So what do you need to show to find your lead for a Series A? (hint: it's not a $1M or even $3M in revenue) Checkout the checklist for the 3 key signals VCs want to see 💪 -- ♻️ Repost to help a founder in your network Click 'visit my website' at the top of this post to register for my free Unlock your Series A session on how to navigate VC expectations in this market

Trick question - does a Series A always follow your Seed round? ❌ The answer is NO in most cases At least that's what the data from Peter Walker and Carta is showing → 42% of Seed rounds were bridge rounds in Q1 → Only 15% graduate to a Series A in <24 months Which is down from the 31% graduation rate in 2018 and 40% in 2020 The bar is higher now and all of these seed stage companies failed to show enough progress to unlock their Series A and had to raise an extra round - with extra dilution 😞 And this all gets extra tricky when Seed to Series A also sees the highest valuation multiple drop across all of the rounds... So what do you need to show to find your lead for a Series A? (hint: it's not a $1M or even $3M in revenue) Checkout the checklist for the 3 key signals VCs want to see 💪 -- ♻️ Repost to help a founder in your network Click 'visit my website' at the top of this post to register for my free Unlock your Series A session on how to navigate VC expectations in this market

Trick question - does a Series A always follow your Seed round? ❌ The answer is NO in most cases At least that's what the data from Peter Walker and Carta is showing → 42% of Seed rounds were bridge rounds in Q1 → Only 15% graduate to a Series A in <24 months Which is down from the 31% graduation rate in 2018 and 40% in 2020 The bar is higher now and all of these seed stage companies failed to show enough progress to unlock their Series A and had to raise an extra round - with extra dilution 😞 And this all gets extra tricky when Seed to Series A also sees the highest valuation multiple drop across all of the rounds... So what do you need to show to find your lead for a Series A? (hint: it's not a $1M or even $3M in revenue) Checkout the checklist for the 3 key signals VCs want to see 💪 -- ♻️ Repost to help a founder in your network Click 'visit my website' at the top of this post to register for my free Unlock your Series A session on how to navigate VC expectations in this market

Trick question - does a Series A always follow your Seed round? ❌ The answer is NO in most cases At least that's what the data from Peter Walker and Carta is showing → 42% of Seed rounds were bridge rounds in Q1 → Only 15% graduate to a Series A in <24 months Which is down from the 31% graduation rate in 2018 and 40% in 2020 The bar is higher now and all of these seed stage companies failed to show enough progress to unlock their Series A and had to raise an extra round - with extra dilution 😞 And this all gets extra tricky when Seed to Series A also sees the highest valuation multiple drop across all of the rounds... So what do you need to show to find your lead for a Series A? (hint: it's not a $1M or even $3M in revenue) Checkout the checklist for the 3 key signals VCs want to see 💪 -- ♻️ Repost to help a founder in your network Click 'visit my website' at the top of this post to register for my free Unlock your Series A session on how to navigate VC expectations in this market

Valuation multiples step down at each new round …and that’s completely normal 👀 These drops are not a sign of weird times or a broken system ARR multiples are supposed to go down over time Because eventually they have to trend to the public multiples ✅ Now… As long as your revenue stays on the venture scale path → your revenue multiples will keep dropping → but your overall valuation will go up So if you’re going to raise capital… I think it’s important to understand that the multiple you raise at isn’t what you’re actually worth TODAY ❌ It’s the multiple you’re worth assuming you hit those FUTURE venture scale expectations (once you hit $1M ARR, can you get to $100M ARR in 7 to 10 years?) Which basically means that once you hit $1M ARR... You’re growing at 10% month over month for the next 24 months straight before starting to slow down to 2x year over year growth So even though Seed to Series A sees the biggest drop in multiples, that 10% mom growth will still drive up your valuation ----------------- But here’s the thing… If you’re growth slows to less than 2-3x between Seed and Series B → or sub $10M in ARR Your multiple doesn’t just drop to the Public Index (currently at 6.4x) It’ll actually fall below that index (closer to a 1-3x multiple) Because the acquirer is now arbitraging between they pay for you (1-3x multiple) and what they’re worth (6.4x multiple) ----------------- So what can you do? Focus on the milestones that’ll fuel your growth → instead of fundraising rounds or paper valuations And keep your cap table as light as possible until you’re ready for step 3️⃣ 1️⃣ Problem Solution Fit 2️⃣ Go to Market Fit - unlocks Series A 3️⃣ Scale PMF #1 - Series A use of funds 4️⃣ Scale PMF #2 -- ♻️ Repost to help a founder in your network Click 'visit my website' at the top of this post to register for my free Unlock your Series A session on how to navigate VC expectations in this market