Companies that raised at insane valuations last year

I can’t believe how many companies I’ve looked at recently that raised rounds at 30x+ ARR multiples back in 2021. The number is staggering and what’s even crazier is that most of these companies are on a growth rate to earn back that multiple in likely 3+ years.

Let me illustrate using a company that had $50M ARR that raised at a $1.5B valuation in 2021. They raised at a 30x ARR multiple. Assuming they are growing at 50% YoY, then their ARR will look like the following:

2021: $50M ARR

2022: $75M ARR

2023: $112.5M ARR

2024: $168.75M ARR

Assuming a pretty damn high growth rate at 50% YoY, they will need to get to $150M in ARR in 2024 in order to get back to a 10X ARR multiple which would be consider high, but reasonable at this point in time.

Now a few things can happen. The market can come back and ARR multiples can go back up. Revenue growth could also accelerate. But the opposite can also happen…. ARR multiples can stay stagnant and revenue could also decelerate which tends to happen with most tech companies.

Time will tell what will happen to a lot of these companies, but many could be in a lot of trouble when they run out of cash and will need to raise another round. Most will likely end up with that dreaded down round.