We often hear companies claim, “We’re growing in our valuation from 2021.”
That statement refers to their expectations about when they will price their IPO, or regarding a future private round. They imply that they will wait to go public until they can price an IPO that is higher than or at least the same value as their last round of funding. This further implies that the company is opposed to downward rounds or publishing a drop in their valuation.
Interestingly, these companies claim they can — as if growing to the 2021 valuation is easy and can happen in the short term.
We always try to do the math every time we hear a company make this statement (again, we hear it often). In most cases, it takes more than a few years for an IPO to be priced at a company’s 2021 valuation (assuming perfect execution), and in some cases we don’t think it ever will.
Our quarterly chart shows the math behind how long it will take companies to price their IPO so they can match their previous valuations:
Image Credits: Irving Investors
Using the chart
If you grow slower than 30%, chances are you will never be able to match your 2021 valuation.
The layout of the chart is intended to allow any company to chart itself on the grid using a few metrics. The data will then tell you how long it will take a company to reach the valuation it takes to price an IPO and match their valuation from 2021. The data sets are general, but they are broad enough to apply to almost any company.
Companies need three inputs to use the chart:
- Their own comparable group of listed companies (guidelines given below);
- How much that peer group has sold this year / CY2022 (guideline below);
- Projection of your growth rate.
Step 1
- Start with your valuation in the last round (we’ll mark it at “$100.00”);
- Select the performance discount on the peer group shares closest to your peer group sell-off in 2022:
