Are you tired of bad news for startups? Bored of the layoffs, cutbacks, and preaching from people who suddenly discovered the efficiency gospel?
Well, how about good news? I’ve got a few for you: software valuations made a modest comeback this year.
When we refer to startups, we generally mean technology-focused early stage companies. Of course there are restaurant chain startups and, I assume, ceramics startups and all sorts of high-growth companies. But startups with capital S mean little tech companies hoping to grow quickly, often driven by venture capital dollars. And that means software companies in practice.
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So if software valuations recover this year, we can conclude that startups generally see some valuation pressure rolling off their backs. Given that we expect a large number of startups – both early and late stage – to raise capital this year, any positive movement in valuation terms is more than welcome; it could pave the way for many companies to get more capital at prices that are less dire.
Do we see a huge improvement in software revenue value? No. But given how far the valuation multiples have fallen, even a 1x gain is material. Let’s investigate.
Up, up, down, down, up
It took less time to deflate the spike in startup valuation we saw in late 2021 than it did to fill it. By mid-2022, it was clear that tech startups were operating in a different environment and previous equity prices would no longer wax.