Time to talk money. What’s the state of the current M&A and investing environments? The last two years have seen ample transformation – not just in various tech sectors but the investing class that underwrites them. A combination of Covid and other factors has created a unique funding landscape.
To break this down, we hosted a panel discussion at Localogy 2021. A roundtable of investors and M&A advisors batted around the topic. Think of this as the on-stage version of our ongoing M&A roundtable video series. It’s also the topic of this week’s Video Vault, with takeaways and video below.
Let’s talk money. We are bringing together leading investors from our community to talk about recent events in local commerce and developing trends that will shape the marketplace over the next 5 years.
Carey Ransom, Operate
Josh Scherman, B2B Software Advisors
Shaun Duncan, Riverside Technology Capital Partners
So what defines the current environment? For one, an abundance of capital puts startups in the driver’s seat in terms of negotiating leverage. We’re also seeing companies delay IPOs in favor of other liquidity events that don’t involve the rigors of public markets. And some sidestep IPOs altogether (read: SPAC).
Taking those factors one at a time, the abundance of capital in today’s market results from several sources of funding moving into the traditional venture space. That includes everything from corporate investing arms and PE to sovereign wealth funds. The result, as noted, is a seller’s market for startup equity.
Carey Ransom welcomes the challenge as this keeps him and his firm on its collective toes to compete with other sources of funding for deal flow. These are the types of headwinds that force creativity and innovation (a metaphor for the Covid era), which has caused investment firms to develop new muscles.
Another result of a market that’s saturated with funding is higher valuations. ARR multiples are at all-time highs, especially in SaaS-based businesses. The latter continues to be an investor darling as a category, given its unit economics and recurring revenue, which breeds a certain degree of reliability.
But through all of this, one advantage that stands out in a competitive funding environment is operational experience. All of our panelists have that, including executive stints at Salesforce, Constant Contact, and others. This engenders a more multidimensional set of skills and perspectives for any investor.
In addition to good insight on picking winners, this operational experience can help in securing deals and executing them. Having sat on both sides of the startup/investor table, former operators can know how to sell themselves as smart money, and to provide ongoing operational mentorship.
We’ll pause there and cue the full video. Stay tuned for more deep dives and video footage from Localogy 2021…