A deep dive into how startup valuations work and what they say about our portfolio
It's no surprise that one of the most important features our customers look for is returns on investment. However, with startups being so illiquid and taking between 5 to 10 years to sell, it can take a while for investments to materialise.
With this article we are keen to help investors understand how exactly returns and valuations work in the venture world. This is a refresh on our last valuation article which you can see here.
What are valuations and why are they important?
One of the best ways to understand performance is to look at our startup valuations. Each of our startups will get valued at the point of raising funds, with a startup typically fundraising every 12-18 months. Valuation changes are very helpful as they indicate whether we are on the right investment path and whether we are likely to see a return on investment. It's important to reiterate that these are not realised and a startup may not sell at that price.
How are startups valued?
Because of the lack of financial history, and the need to capture future potential growth, it can be tricky to accurately value a startup. In general, at the very early stages valuation is a factor of how much the startup is fundraising. A startup will typically give away 10% - 20% of its equity each fundraising round. So if a startup is fundraising £1m, and is giving investors 20% of its equity in exchange for that, then the value of the startup becomes £5m.
After that, as a company grows, valuations become much more a product of earnings and growth. At Series A, if you're not earning more than $1m annually, you'll struggle. And at Series B, your valuation will effectively be a multiple of your annual revenue - typically anywhere between 10-30x.
The stronger your growth trajectory and potential to grow further, the higher the multiple you get.
A look at our portfolio's valuations
Off the back of the most recent valuations (April '23) within our portfolio, we wanted to share an updated list of our unexited startups at Cur8 that have gone through additional rounds of funds and the change in valuation multiples per company. The list only includes the startups we have recently received valuations for rather than our full portfolio.
It is still early days, but we can already see some more promising multiples including one over 8x. We are hopeful that some or all of these can continue their trajectory and get us >10x multiples. We will continue to update the list as further valuations take place.
|Startup||Valuation increase multiple*||Investment Date|
|XYZ Reality Limited||6.8||12/3/2020|
|Anything World Limited||4.7||23/4/2021|
|Quantcopy Growth AI Limited||4.7||30/9/2020|
|Nerv Technologies Inc.||3.5||30/12/2020|
|Islamicfinanceguru Limited II||1.3||26/3/2021|
|Office & Dragons Ltd||1.1||9/2/2022|
|Retrace Software Limted||1.1||30/11/2020|
|Vidi Guides II||1.0||17/6/2021|
|Vidi Guides I||1.0||12/3/2021|
|Landscape Ventures Ltd||1.0||26/7/2022|
|Cloe.ai Technologies GmbH||1.0||7/5/2021|
|Ori Industries 1 Limited||1.0||22/3/2021|
*Note these multiples are not inclusive of admin fees.
Also note, we have not included the deals we have already exited out of. You can read about those here.
A note of caution: startups are either increasing in valuation steadily, or they are stagnant and then go bust. So we fully expect, out of the 70+ deals we have done, for some of those to go bust. The going bust is a part of venture capital and shouldn't unduly worry you. The key thing to hone in on though is "do I have a company in my portfolio that is going to do 50x over the next 5-10 years?". That's the thing to optimise for.
How is our overall portfolio performing?
We ran the numbers on our full portfolio of companies in the summer of 2022 and at the time the portfolio stood at 2.57x in total. The most recent valuations (April '23) show a further increase in the portfolio at around 3x in total.
The portfolio is around 3 years old, so we're pretty happy with that, and we can already see we have 7 companies that we can see becoming really big winners.
Our expectation remains to hit the 4-6x multiple over a period of 8-10 years for our investors.
So how do you get in on the action?
Typically only a small percentage of startups succeed - you can improve your odds by investing with experienced investors such as through a syndicate or a fund like Cur8. Check out the Cur8 live deals page for our latest startup deals and funds.
Startups are a risky investment and not for the faint hearted, but as you can see from the data, there is an opportunity to win big if you invest in the right startup so they are worth considering for your next investment idea.
If you want to learn more about startup investing we offer a Startup course to help you get started on your journey.