$100M Valuation and No More Funding

Last week, I spoke with an entrepreneur who had just secured funding at a post-money valuation of $100 million. When I inquired about his thoughts on the funding round and investor mix, he explained that his aim was to de-risk personally, strengthen the balance sheet, and position the business for an attractive exit in 3 to 5 years. I brought up the possibility of an IPO or pursuing a unicorn valuation in the future, and he expressed no interest. After evaluating startups broadly and crunching the numbers, he felt that a $100 million valuation, though significant, would still pave the way for a favorable exit, potentially to a strategic or private equity firm. He believed that targeting an IPO or a unicorn valuation in the future might jeopardize the value they’d already created and would raise expectations he wasn’t prepared to meet. However, if the business landscape changed or a new related opportunity arose, he would consider revisiting things. Based on his experience and the years spent building his business, he deemed it wise not to raise money past a $100M valuation.

Even raising at a $100M valuation signs the founders and team up for an exit goal of 3-5x that. How many $300M+ exits occur per year? Not many. Now, play it out even further, and think about raising money at a $300M+ valuation to continue aggressively investing in the business. From there, the goal has to be an IPO or unicorn round. 

From an entrepreneur’s standpoint, it’s easy to become engrossed in the thrill of securing funding, expanding the team, and growing the business. Yet, more growth doesn’t always equal a better business. Some markets just aren’t that big. Some markets take longer to develop. Furthermore, personal priorities evolve, and one’s perspective on opportunities can shift over time. And, every round of funding shifts the goal posts further out. 

Recent market downturns have indicated that IPOs now face higher scrutiny. Take Klaviyo’s public offering, for instance. Despite its immense value, the standards for them were exacting, given they reported over $600 million in annual recurring revenue and a 50% growth rate. Companies positioned to achieve such scale should consider it, but those that don’t meet the threshold (e.g. $200 million ARR with 30% yearly top-line growth) would benefit more from focusing on the private equity path, or simply growing organically without more fundraising. An IPO is increasingly unlikely. 

Entrepreneurs shouldn’t keep raising money just because they can, especially after a $100M valuation. Instead, entrepreneurs should continually evaluate what they’re signing up for and what outcomes are required to be successful.