Ridiculous growth. 3x ARR. I keep seeing this combo in today’s market. Here’s why…

Why High Growth Companies Can Be Dirt Cheap

It comes down to AI driving incredible growth.

A hot startup goes out to raise. They sign a term sheet at 10-20x ARR.

But funding rounds take months to close. In the meantime, the company grows like crazy.

What was a deal at 10-20x becomes 3-4x ARR.

Founders: Stick to the Deal

If you’re a founder, here’s how to play this: just close the deal.

Yes, it’s a bonanza for investors.

But a deal is a deal. Honor your agreement.

If you try to re-trade, you could lose the deal entirely.

Worse yet, this will affect your reputation in the industry. Startupland is a small world.

By the same token, if growth slows down after issuing a term sheet, investors should never retrade the terms.

An Incredible Time to Be Investing

For investors, this means the deals we’re doing today will be historic.

No one has ever seen growth like this. And the multiples look like something out of the dotcom crash.

It also means that if a company is growing really fast, we can afford to pay a higher multiple. That multiple is likely to compress significantly by the time we wire.

Wrap-Up

Investing today is so much better than when I started in 2021.

Tourist VCs were doing deals in $10 million ARR startups at 100x revenues. Those companies were growing 3x year over year at best.

Today, we do deals at a fraction of that multiple. These startups are growing like nothing in the history of business.

I’m loading up on as many of these companies as I can. Good deals don’t last.

More from the blog:

38 Words Got This Founder on My Calendar — Here’s the Cold Email Formula That Wins

I Looked at 21 Startups This Week. Only One Got a Check.

Fundraising Friction is Killing Your Round – Here’s How to Remove It

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