This article discusses the changes in the venture capital (VC) industry, particularly in the valuation of startups. The author argues that the VC industry needs to adapt to a new paradigm, where valuations are more realistic and achievable growth rates are considered.
Here are some key points from the article:
- New equilibrium: The author suggests that the VC industry has moved into a new equilibrium, where valuations are no longer based on aggressive projections but on reasonably aggressive but achievable ones.
- Math of venture capital: The author argues that VCs need to achieve 3x returns in their funds to keep the machine humming and attract new investors.
- Balanced set of comps: The author advises entrepreneurs and VCs to agree on a balanced set of comparable companies (comps) when valuing startups, rather than relying solely on the highest multiple companies.
- Realistic expectations: The author emphasizes the need for realistic expectations around growth rates and returns in the VC industry.
Some key takeaways from the article are:
- VCs need to adjust their valuation models to reflect a more realistic view of startup growth rates.
- Aggressive projections are no longer sustainable, and entrepreneurs and VCs should aim for reasonably aggressive but achievable projections.
- A balanced set of comps is essential when valuing startups.
- Realistic expectations around growth rates and returns are necessary for the VC industry to thrive.
Overall, the article suggests that the VC industry needs to adapt to a new paradigm, where valuations are more realistic and achievable growth rates are considered. This will require entrepreneurs and VCs to work together to agree on reasonable projections and valuation multiples.
