To The Moon

Here’s the challenge. The private markets are FULL of companies who were growing 50-100% at ~$100m of ARR. And the reality today is many of those are now growing <20% at $200-$300m ARR. TAMs were captured sooner and companies didn’t scale into their next product line, large incumbents bundled them, execution challenges popped up, etc. Scaling to $500m of revenue is HARD

So if these companies went public, and public markets valued these companies at 15-20x revenue at $100m of revenue, they’d then trade 6x or less by the time they got to a higher scale due to growth decay. And that would leave every public market investor who invested at $100m of revenue underwater due to multiple compression.

So instead of paying up for subscale companies, public investors would rather wait and see. And this leads to a lack of demand for the sub scale ones and depressed multiples. This of course creates a huge opportunity to “pick right” when investing in smaller cap companies! Not every company will see growth decay that aggressively. Look at $MongoDB Inc.(MDB)$

Markets are cyclical, and this all of course could change. But for now, these appear to be the market dynamics. And the high valuations of private rounds appear to make it harder for subscale companies to go public. I say “appear” because there’s nothing actually wrong with a down round IPO (unless you’re a VC who’s marked up your portfolio to the last round price and raised funds on these paper marks…)

But when you have massive pools of late stage capital all momentum chasing the same companies it leads to inflated private valuations relative to the public markets. And if companies went public at 5-10x revenue, then the late stage venture markets would crumble

https://x.com/jaminball/status/1804570816845349268