INSUBCONTINENT EXCLUSIVE:
The value of technology companies has fallen as the broader public markets have repriced themselves in light of COVID-19-related market and
economic disruptions.
And as the public markets sort out the new value of a huge piece of global business, private companies are being
shaken as well.
What happens in the public markets trickles into the private markets, so if we&re seeing the value of public tech companies
fall, startups are going to take a hit
To understand that dynamic, we spoke with Mary D&Onofrio, an investor with Bessemer Venture Partners
She the right person to chat with about the links between private valuations and public share prices as she not only helps put capital into
growing startups, she also helps run the Bessemer cloud index (now a partnership with Nasdaq, and trackable on a day-to-day basis).
As she
versed on both sides of the public-private divide, we asked her how she values startups in normal market conditions and in more turbulent
We also dug into how founders are reacting to the changing world that may no longer be as amenable to their business plans
Pulling from our conversation, D&Onofrio told TechCrunch that startups want to be valued like companies were a few months ago, while
investors want to pay today market prices.
But enough introduction, let get to the conversation
This interview has been edited for length and clarity; thanks to Holden Page and Walter Thompson for help with the
transcription.
TechCrunch: During our last conversation, we discussed how to value startups
You explained a method in which you consider the future value of cash flows
How do you value startups today versus how much you think they&ll be worth down the road?
Mary D&Onofrio: I think what important to know is
that outside of a market disruption, which I think was the the nature of the question to begin with, cloud software tends to trade on
revenue and revenue growth
Companies should fundamentally be valued on the present value of their future free cash flows
But I think with cloud software, in particular, there a prioritization of taking [market]share, and then applying a very long term healthy
margin structure on a very massive revenue base once you get there, and generating cash then.
And so I think in bull markets, when capital
is readily available, prioritizing growth makes a lot of sense because you want to capture as much share as you can
And then losses are also tolerable because the capital is available to fund that massive growth
And there are actual measurable metrics that validate that structure, with CLTV to CAC [customer lifetime value to customer acquisition
costs] being one of them.
