I recently went down to Miami for the Mining Disrupt conference. I met some very interesting startup founders building promising crypto companies.
But I didn’t invest in any of them. The reason is simple: they were too expensive. For example, there was one pre-revenue startup in the crypto payment space. The founder was very charismatic, technically savvy, super smart and had very cool ideas. But the valuation was $15 million. As much as I liked the idea and the founder, I couldn’t pull the trigger.
I continue to view most startup deals as overvalued. The valuations simply don’t make sense. Pre-revenue, seed-stage companies are raising at $15 million to $20 million valuations. And companies with a few million in revenue are raising at more than $100 million. It’s crazy out there.
And I’m not the only one who feels this way. This type of tweet pops up on Twitter all the time.
Today I was sent a startup that has $300k ARR and is raising on a $50M pre-money valuation 🤯…. what is happening in the world⁉️
I’m curious if others are also seeing crazy high valuations or if these are just one-off situations? 👀
— Caroline Yeager (@caroline_yeager) July 15, 2021
In fact, things are so crazy that when a company has a realistic valuation, people are wondering if they should become suspicious.
Question: is it now a red flag when a startup actually has a reasonable valuation?
— Caroline “PrivSec” McCaffery (@mcmccaffery) July 15, 2021
So I continue to watch, wait and invest mostly in other things for now. Occasionally I will come across a startup deal at a fair price — and if I like it, I’ll invest. But for the most part I’m holding back.
In the short term, I may look foolish for not investing in some of these companies. But over the long run, I’m confident that it’s a good decision. It’s very difficult to make good money on early stage investments when you overpay on valuations.