Most of the deals I get invited to online are early-stage ones — pre-seed, seed, and Series A. But I do see a fair number of Series B and C deals as well. And I’ve noticed that the later the deal is, the higher the valuation tends to be lately. Some of that naturally results from the company being slightly more mature. But the jump in valuations that I’m seeing goes beyond just maturity.
Deals that a year ago might have been valued at $50 million are raising at $150 million now. Usually these are in a hot area such as online education or Software-as-a-Service — but not always. From what I’ve seen, later stage valuations are rising across the board.
I think those high valuations are happening because startup investing is a very hot area right now. Money is flowing into startups, especially Series A and later. Professional investors are laser-focused on investing in hot startups with good product/market fit — which is most often seen in startups that have had time to prove themselves. But investors who wait for that validation are paying a very high price for it.
That’s why I remain focused on the earlier-stage deals. The valuations haven’t gone completely crazy there. I’d much rather take a lot of early-stage shots at companies with $6-to-30 million valuations than invest in a Series B company raising at a $1 billion valuation with just $5 million in revenue.
Naturally, these early-stage deals require a lot more patience. Pre-seed and seed startups need time to fully build their products and grow their customer base. And more of them will fail compared to more mature startups. But I’m willing to take that chance in this environment. The ones that make it big will more than make up for the failed companies. And those winning investments will yield far better results than if they were made at overly high Series B or C valuations. If your investment horizon allows you to, I recommend doing the same.