Weekly Update #217: Comparing Tech Multiples

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Hello Investors,

Comparing Tech Multiples

Our friends at Renaissance Capital put together this graph to show the rise in price/sales multiples, and also the premium paid for tech "unicorns".

Some main observations:

  • Multiples are at their highest in the past 10 years
  • We continue to see a multiple "premium" for unicorn tech companies at IPO (that is, their price/sales ratio is higher than the broader tech company universe). Unicorn tech companies are typically younger than public ones, and have more room for revenue growth. Therefore investors are willing to pay higher prices (sometimes referred to as a company's ability to "grow into their multiple")
  • The multiple "premium" has actually decreased over the past few years. In 2011-2014, the multiple "premium" was 4.5x, 6.6x, 6.4x, and 5.7x, respectively. This means that a unicorn tech company with $100 million in revenue in 2013 was worth $640M ($100M * 6.4x) more than its non-unicorn tech counterpart. That "premium" has averaged 2.6x between 2015-2017. 

In other news...

 

Thanks,
Phil Haslett
Founder + Head of Investments, EquityZen

 

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