It's never too early to go public

5 charts on revenue multiples, growth and expectations, plus the hottest 'new' thing in PE

• the key to going public, where knowing is maybe 1% of the battle

• growing revenue has gotten harder, even top quartile performers are feeling it

• the new hot thing in private equity

• survey says, revenue will start flowing soon

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It’s never too early to go public (reprise)

The IPO market is very open.

All you need to do is grow revenue at a healthy clip, and ideally do it profitably, and you can IPO to your heart’s content.

That’s not so bad, right?

Look at how public SaaS companies are being valued:

Meritech

Companies that grow revenue 20-40%—even unprofitably—are trading at 7.7x revenue.

Now, it’s true that 7.7x is ~40% of what it was at peak, but it’s just a shade below what it was back in 2017. So you see? Public markets are definitely open for business.

The reason that there is a massive logjam of PE/VC-backed companies isn’t because there’s something wrong with the IPO-pot-of-gold at the end of the PE/VC rainbow. It’s that actually growing revenue that quickly, let alone doing it profitably, is super-hard and pretty rare. You might even call them unicorns.¹

There are currently zero public saas companies projected to grow revenues by 40%+ over the next 12 months—whether profitably or otherwise.

The point is that marginally lower rate cuts aren’t likely to be the thing that rescues PE/VC for the current paucity of exits (and paucity of returns for LPs).

There’s no shortage of cash out there, it’s just that the cash demands some combination of rapid growth and excellent margins that are very difficult to achieve, and it’s unclear how 50 bps of cuts will move the needle much. ²

Growing revenue is hard (and harder than before)

In PE world, there are similar challenges in getting to payday.

There are more deals, but they’re smaller value, and total exit value is very low relative to how much money was deployed: