How do market trends impact startup valuation?

In my experience, macroeconomic headwinds and tailwinds play a super important role in startup valuations. Here’s how: - in good times, people are more eager to part with their money, thereby making many investment rounds more competitive (for top tier startups especially) and thus driving up valuations. - in bad times, money flows are much less, people are reluctant to invest, less investors write checks, and startups must make their valuations more attractive aka lower to attract dollars. Simple as that. Any questions class?!

In the uptrend in 2022, Saas Startups can have a valuation x50 times ARR In the downtrend in 2023, SaaS Startups only have a valuation x5-8 times ARR When the money is cheap, the valuation is high and vice versal Founders should fundraising in uptrend, and focus on building and growing on downtrend

Another macro-ish trend impacting startups and their valuations at the moment, in Canada at least, is the fact that a very large amount of risk capital is tied up in illiquid companies. In particular, many investments were made by people with investment horizons shorter than one year with an expectation for their investment to become liquid within 3-6 months. The macro environment, however, has not been conducive for these companies to go public, and now we are seeing a domino effect where this tied up capital is no longer available for what normally would be the next wave of investments. This shortage of capital makes this a buyers' market, and hence valuations are down.

Blockchain, Web3.0, and AI are enabling new products and business models, which in turn are generating new revenue streams. While we have seen booms and (high profile) busts already in these technology enabled sectors (remember FTX?), we can expect a lot more growth to come as these technologies will be adopted across a broader base of sectors, new and traditional. A key parameter impacting the valuation of startups utilizing these technologies will be scalability. Those companies addressing markets with a new and disruptive must-have offering that can be scaled rapidly will attract outsized valuations. The flip side, as pointed out already, will be companies needing to develop strategies to either embrace or defend against disruption.

Quando se trata de avaliar startups com base nas tendências de mercado, é essencial examinar como essas empresas se adaptam a mudan?as, inovam de maneira contínua e atendem às demandas em evolu??o. Startups com modelos de negócios flexíveis e foco na sustentabilidade têm maior probabilidade de manter avalia??es robustas, independentemente das flutua??es do mercado. Além disso, a diversifica??o de fontes de receita e parcerias estratégicas podem ser diferenciais significativos na avalia??o.

Low supply of capital can make it expensive, and this in turn can significantly change the risk:reward ratio of investments. In these environments, capital usually follows well-run, profitable companies raising capital at reasonable valuations. When the supply of capital is higher, it is usually cheap and this allows investors to take greater risk as the risk:reward is more skewed in their favour. In 2020-21, capital was cheap and valuations were extremely high. In 2023, capital is as expensive as it has been in years, and valuations are more grounded. One thing to note is, too much dry powder accumulation during expensive capital periods can result in a knee-jerk reaction that could lead to a return of bullish valuations.

Market trends can impact risk and return expectations especially when sovereign coupon rates and repo rates go up. This makes future cashflows of the company get discounted higher, making the valuation of the company lower today. Why is this so? The main goal of investing in startups or private equity is to beat traditional/low-risk investments by a significant margin. And if this margin is lowered by the fact that interest rates have risen, then the company's valuation may be discounted to make up for that and to manage risk.