With tech stocks rebounding in early 2023 but the economic outlook uncertain, Mads Jensen advises B2B SaaS founders who need capital that year to raise now if they have a reasonable offer, rather than try to time the market.
- The EMCLOUD index fell from 18.5x ARR in September 2021 to 5.2x in November 2022, then rose 33% to 6.9x within three months.
- A very strong US labour market in January 2023 could mean a soft landing or renewed wage-driven inflation.
- Markets are hard to time: multiples might rise later, but funding markets could also freeze again.
- If you need cash this year and have a reasonable offer now, you should probably take it.
2023 has been “up up up” for tech stocks. Animal spirits have suddenly flipped from recession worries to “bull market”-like excitement.
Should founders rush out to raise now?
Public market context
The BVP Emerging Cloud Index (EMCLOUD) took a deep plunge in the past 18 months. From a peak of 18.5x ARR in September 2021, it fell to 5.2x in November 2022.
Since then, it has climbed to 6.9x – a 33% increase. That’s a big jump in just three months.
People have even started talking about IPOs again.
But is there trouble on the horizon?
Choppy waters ahead?
The US labour market has been exceptionally strong.
Non-farm payroll rose by more than half a million jobs in January. And the unemployment rate sank to its lowest level since 1969.
This could mean a soft landing and no recession. It could also mean renewed inflation pressure coming from wages.
It really could go either way from here.
Should founders raise now? Or wait?
Tech markets have been in a buoyant mood this year.
We’ve seen more activity in venture capital in January than we saw in most of Q4. Should founders who need capital raise now? Or wait and hope that multiples go up further?
It’s hard to time markets. If you need capital and can raise now, you probably should. Yes – ARR multiples might go up later this year. But funding markets might also freeze again.
And it’s worth considering:
- Raise now, potentially at a lower valuation, or
- Try later, but maybe not being able to raise at all?
Individual circumstances will apply. But on balance, if you need cash this year, and you have a reasonable offer now, you should probably take it.
Frequently Asked Questions
Should startup founders raise now or wait for better valuations?
Mads Jensen says it is hard to time markets. If you need capital this year and can raise on reasonable terms now, you probably should, because waiting for higher multiples risks not being able to raise at all if funding markets freeze again.
How did SaaS valuations move between 2021 and early 2023?
The BVP Emerging Cloud Index fell from a peak of 18.5x ARR in September 2021 to 5.2x in November 2022, then recovered to 6.9x by early February 2023, a 33% rise.