What if we stopped focusing on the valuations of software start-ups (SaaS)? In any case, this is what the latest report from Bessemer Venture Partners, “State of the Cloud 2022”, recommends. “ Historically, valuations have been the primary measure of success in private cloud markets. But the unicorn rush is spiraling out of control,” the study authors write. This magical animal, which represents a start-up valued at over a billion dollars, was still a rare species in the tech world a few years ago. In the first quarter of 2022, there were more than 1,000 in the world. A club no longer as closed as before.
The end of 2021 saw the birth of an unprecedented number of new unicorns, most of which did not fully deserve this status, as their turnover is so low. Valuation multiples have reached record highs (30, 40 or even 50 times earnings!).
A more “rational” metric
“The abundance of capital has created an environment where valuations have kind of lost their meaning. The only thing we can truly conclude about a unicorn today is its ability to attract an investor’s interest, the report points out. This has unfortunately led many start-ups and investors to focus on valuation as their main objective, instead of building a big business. »
Bessemer Ventures Partners introduces a new imaginary animal: the centaur. It designates start-ups whose annual recurring revenue (ARR) – the most common way to generate revenue in the SaaS world – exceeds $100 million. “It’s a much more rational vision,” said Benjamin Bitton, partner at 2C Finance, a firm that supports investment funds and start-ups in their financing operations (fundraising, acquisition, etc.).
An inequality between Europe and the United States
The American fund estimates that there are 150 centaurs, of which 60 were born in 2021. It is therefore seven times rarer than a unicorn! Among them are Salesoft, Cloudinary, Iterable, Deel (wage portage start-up founded by a Frenchman) and Dataiku, a Parisian company which moved its headquarters to New York in 2016. The unicorn specializing in artificial intelligence surpassed $150 million in ARR in March.
This symbolic threshold of 100 million is not necessarily suitable for everyone. “It’s a very Anglo-Saxon vision. Reaching 100 million ARR is more difficult in Europe than in the United States, because the European market is much less homogeneous”, tempers Benjamin Bitton.
Very few French start-ups communicate on this metric, which they often consider too competitive. The neobank for TPE-PME Qonto is one of the young French shooters on the right track to integrate this club in France, according to our information. “Generating over 50 million ARR in two or three European markets is good enough. But the most important thing to look at is not the absolute number but the growth of the ARR”, estimates Benjamin Bitton.
At a time when valuations are being revised downwards and big fundraisers are becoming increasingly rare, the level of ARR has never been scrutinized so much.