NASDAQ at an All-Time High.
Current (Feb’24): 16,092
Source: Yahoo Finance as of 2/29/24
Largely Driven by Magnificent Seven.
Seven largest companies
as share of S&P 500 total market cap
Indexed return
Source: Compostat, Goldman Sachs Global Investment Research, FactSet as of October 2023
Share of largest seven companies' market cap in S&P 500 is at an all-time high
The Magnificent 7 have led the index higher in 2023
Current (Feb’24): 10.8x
High Growth Cloud Software Multiples.
Note: High Growth NTM Revenue Multiple based on index of cloud and software companies growing >30% (average over period). Data as of February 2024.
Peak (Oct’21): 25.1x
Trough (Dec’22): 7.2x
The Market has Stabilized on Rewarding Growth and Profitability.
Source: Meritech Capital from Company Filings as of February 2024. �Note: Relative importance defined as ratio of the correlation of NTM revenue growth and NTM FCF Margin to EV / Implied ARR multiple based on a two-factor linear regression analysis. Represents two-quarter rolling average.
Peak (Jun’21): 11.6
Trough (Jun’20): 2.2
Current (Feb’24): 2.9
Leading Companies to Adjust Their Financial Composition.
Source: Meritech Capital from Company Filings as of January 2024.
Note: NTM defined as next-twelve months consensus estimate.
NTM Revenue Growth and NTM Free Cash Flow Margin
Median NTM Revenue Growth
Median NTM FCF Margin
30%
25%
20%
15%
10%
5%
0%
Mar-21
Jun-21
Aug-21
Oct-21
Jan-22
Mar-22
Jun-22
Aug-22
Nov-22
Jan-23
Apr-23
Jun-23
Sep-23
Nov-23
Feb-24
Current: 14%
Current: 14%
There Are Signs That We’ve Bottomed Out.
Source: Altimeter Capital from Company Filings as of September 2023.
It’s Also Getting Better for Selling Software.
Source: Bravado Network as of February 2024.
53%
Q4 2021
23%
Q4 2022
29%
Q4 2023
41%
YTD 2024
Quota Attainment by Quarter for Software Sales Reps
Indicates Quota Attainment
Tale of Three Situations.
Growing Through Valuations
Raising Down Rounds
Shutting Down or Selling
Source: PitchBook as of February 2024. Note: Represents the median number of months since the prior round for Series B & Series C raises during the respective time period.
Situation One: Growing Through Valuations.
Source: PitchBook as of February 2024. Reflects US data only.
Situation Two: Raising Down Rounds.
Situation Three: Shutting Down or Selling.
Source: Carta as of December 2023.
.
If History Repeats, We Might be Nearing Bottom.
Source: Pitchbook & NVCA, Venture Dollars Invested each quarter as of December 2023.
10 quarters
Internet Bubble
9 quarters
Great Recession
8 quarters
Tourists Are Leaving the Venture Market.
31% CAGR
-35% CAGR
9% CAGR
-10% CAGR
Source: Pitchbook & NVCA as of December 2023.
Note: Non-traditional investors include Corporate VC funds, hedge funds, PE firms, and sovereign wealth funds.
Source: Internal data as of February 2024. Number of Series A investments based on proprietary collected set of relevant cloud and software companies that Redpoint Omega tracks for potential Series B investments.�©2024 Redpoint Ventures. Proprietary and confidential. Do not copy or distribute without permission.
Series A Have Stayed Muted.
Source: Series B and C comps based on proprietary collected set of relevant deals done by peer firms as of February 2024.
While Deal Activity at the Series B and C is Picking Up.
Note: High Growth LTM Revenue Multiple based on index of cloud and software companies growing >30% (average over period); Series B and C current ARR multiples based on median of proprietary collected set of relevant deals done by peer firms. Data as of February 2024.
Spread Between Public and Private Markets Have Tightened.
| 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | 2024 (YTD) |
Public High Growth Software Revenue Multiples | 10.6x | 13.9x | 15.2x | 20.9x | 25.8x | 14.0x | 12.5x | 15.6x |
| | | | | | | | |
Series B and C Software ARR Multiples | 20.2x | 21.9x | 31.3x | 39.7x | 105.4x | 85.0x | 63.5x | 42.2x |
| | | | | | | | |
Premium to Public Market | 1.9x | 1.6x | 2.1x | 1.9x | 4.1x | 6.1x | 5.1x | 2.7x |
Note: Series B and C current ARR multiples based on median of proprietary collected set of relevant deals done by peer firms as of February 2024.
AI Businesses: Demanding a Premium.
3.0x Premium
Note: Series B and C current ARR multiples based on median of proprietary collected set of relevant deals done by peer firms as of February 2024.
AI Businesses: Raising More Capital.
70% More Capital Raised
Note: Series B and C current ARR multiples based on median of proprietary collected set of relevant deals done by peer firms as of February 2024.
AI Businesses: Growing Faster.
2.5x Faster Growth
With Way More AI to Come.
Market Cycles Tend to Repeat Themselves.
Source: Dr. Jean-Paul Rodrigue, Dept. of Global Studies & Geography, Hofstra University
Summary.
The market seems to have stabilized with software selling increasingly showing optimistic signs
Private valuations have trended lower and are more in-line with the historical spread between public and private software companies
There are still a number of businesses in the private market that will need to accept lower valuations, move to sell the company or shutdown
Increasing bifurcation with private businesses: AI companies are being valued higher, raising more capital and growing faster