For years, industry observers have predicted an uptick in startup M&A activity, in part due to the limited number of companies going public. As the IPO dam finally broke in 2025, we didn’t see a huge surge in M&A dealmaking, but we did see a large spike in the known value of M&A deals.

Globally, in 2025 so far, there have been around 2,300 M&A deals involving venture-backed companies with a collective known deal value of more than $214 billion, per Crunchbase . (It must be noted that most of the reported M&A deals do not have amounts, so the dollar amount is based only on the deals in which a value was provided.)

Interestingly, deal count was only up slightly, signaling much larger deal sizes. The dollar amount is up from a known value of $112 billion in 2024, for an impressive 91% increase.

The trend was similar in the United States, which dominated M&A activity, comprising about 73% of all transaction values and 56% of transactions alone, globally.

There was a known value of $157 billion across nearly 1,300 deals, compared with a known $79 billion across about 1,100 transactions in the U.S. in 2024. Around 37 of those deals were valued at $1 billion or more, per Crunchbase .

, technology, media and telecoms deal advisory and strategy leader for , is not surprised by the uptick in M&A deal volume and dollars.

“A healthy IPO market tends to increase M&A activity rather than reduce it,” he told Crunchbase News. “Many companies pursue dual-track strategies, simultaneously preparing for an IPO while exploring M&A, which gives them greater flexibility and leverage in negotiations. The threat of a public offering can be used as a bargaining chip to drive up a startup’s sale price.”

On top of that, he points out, a strong IPO market creates a new wave of cash-rich public companies that “immediately look to acquisitions to accelerate their growth,” ultimately stimulating M&A demand.

Larger deals tick up

$32 billion purchase of cloud security unicorn marked the largest acquisition of a private, venture-backed U.S. company, not just this year so far, but ever. The next-closest deal historically, per Crunchbase data, was ’s 2014 acquisition of for $19 billion. Still, that deal alone wasn’t responsible for the large increase in value of M&A transactions this year.

The next-closest deal in 2025 was ’s $10.3 billion buy of South Korea fintech . After that came ’s $8.87 billion acquisition of .

In fact, M&A exit numbers this year are the highest ever for unicorn companies, with 36 deals in 2025 totaling $67 billion in value.

Other large transactions included:

• In late May, quietly announced its $6.5 billion acquisition of , a little-known but highly technical company focused on model deployment and orchestration.
• In March, it would acquire chip design company , in a $6.2 billion cash transaction.
• In December, , the company behind social media platform , announced plans to combine with fusion company . The two signed a merger agreement to combine in what TMTG called a stock transaction valued at more than $6 billion
• Healthcare software platform in March sold a majority stake to at a reported value of $5.3 billion.

Strategic plays and a flurry of acqui-hires

, technology sector leader, believes that strategic plays drove 2025’s M&A surge far more than distressed sales.

“Corporations are writing big checks for AI, cybersecurity, data acquisitions, and massive tech and talent deals,” he said. “These tech and talent deals used to be worth tens of millions, and now we are in the billions.”

Indeed, fear of missing out appeared to be a driving factor in a lot of M&A activity, especially when it came to AI. The sector also drove a flurry of acqui-hires.

“On the one hand, big corporates are snapping up seed/Series A startups for talent and tech — we can call that the AI acqui-hire trend. Many teams with fewer than 100 employees have landed $100 million-plus exits,” Hoebarth said. “On the other hand, a cohort of 3- to 6-year-old unicorns that stalled on IPO plans is finally selling.”

Looking ahead to 2026, he predicts that acquirers will likely increasingly focus on earlier plays — scooping up emerging tech before it scales, especially in high-growth sectors like AI and cybersecurity.

, co-founder of and a corporate attorney for startups and small businesses, agrees that more acquisitions are happening at seed and Series A, but believes that more value is being transacted at later stages.

“Acquirers are buying at an earlier stage to speed up to capability rather than build internally, as hiring the same team individually is slower and riskier,” she noted. “Seed and Series A founders are more willing to sell in light of the current financing environment and the fact that there is less stigma around a really early exit at present.”

Unless the financing environment picks up evenly for early-stage seed and Series A companies, she expects this trend to continue.

AI vs. everything else

Not only did the ultra-competitive environment, especially in the AI and cybersecurity industries, drive more acqui-hires, but talent also played a larger role than ever in determining transaction value.

, owner of Israel-based , believes that in 2025, pricing has effectively been split into two markets: AI and everything else.

“In AI, talent and IP value often dominate, including outsized acqui-hires that would be irrational in other sectors,” he said.

However, in non-AI tech, pricing remains anchored in revenue multiples and public comparables, heavily influenced by unit economics and operational KPIs.

“Looking into 2026, I expect greater financial discipline across all sectors, including AI, with stronger emphasis on sustainable P&Ls and defensible unit economics,” he predicted.

KPMG’s Bahal said that while traditional valuation metrics such as revenue multiples still play a role, acquisition prices are increasingly being dictated by the strategic value of a company’s talent and its intellectual property.

“This fundamental shift toward valuing people and technology over pure revenue is the new reality in dealmaking, especially as the ‘acqui-hire’ trend accelerates to secure top engineering talent in high-demand fields like AI,” he said.

Unlike Sagie, he thinks this trend is not temporary.

“It is expected to intensify through 2026 as the war for talent and unique technological capabilities continues to be a primary driver of value,” he predicted.

M&A driven by down rounds

Talent and technology weren’t the only things driving M&A activity.

In Hoebarth’s view, the most common trigger event in 2025 was a funding crunch. Because there is so much money flowing into AI companies, it can be easy to forget that a lot of other sectors are struggling.

“Many founders opted to be acquired when facing a down round or failed raise,” Hoebarth said. “We saw startup down rounds hit a decade high — about 16% of deals — this year, so rather than accept significant dilution, founders did a pivot to M&A. These down rounds get lost in the broader AI narrative, which continues to be very positive, for now.”

Mignano agrees. In 2025, the most common practical trigger that pushed early-stage founders to sell wasn’t a single dramatic event but a confluence of many, she said.

Those events include the inability to raise the next round at all or on good terms. If an AI company, the AI technology was not defensible “enough” to get it to the next round, and founder fatigue after a number of years where they have been financially strapped.

Another factor?

“Expansion and increased revenue metrics require a capital-intensive GTM build that the current investors won’t fund and that a possible acquirer may fund post-acquisition,” Mignano noted.

Looking ahead

So what’s ahead for 2026?

Bahal believes that the trajectory of the M&A market in 2026 will be determined by the overall health and stability of the economy.

“A bull case would be fueled by the need to continue the digital transformation of every business, a favorable regulatory environment, falling interest rates and continued economic growth, which would give dealmakers the confidence to pursue strategic acquisitions, particularly in technology and AI,” he said.

Conversely, Bahal believes that a bear case would emerge from an economic downturn, marked by higher inflation or increased regulatory scrutiny and increased geopolitical uncertainty, creating headwinds that would cause both buyers and sellers to pause dealmaking.

Hoebarth notes that EY-Parthenon Americas is forecasting a modest increase in M&A activity in 2026, and definitely lower than what occurred this year. The U.S. M&A deal volume is expected to grow about 3%, following a 9% increase in 2025, according to their data.

In his view, bull case factors include easing monetary policy and continued lower interest rates, strong corporate balance sheets, significant private equity dry powder, and continued innovation in high-growth sectors like AI and cybersecurity.

Hoebarth believes that bear case factors include an economic downturn, trade and tariff uncertainty, tight funding markets limiting liquidity, and increased regulatory scrutiny, especially in China, the EU and the U.K., or geopolitical barriers slowing deal approvals.

“The elephant in the room is still the question of what happens with AI,” he said. “We do see early signs of a pullback in the AI space, which would have ripple effects far beyond the tech ecosystem.”

Sagie believes that if the macro environment “stops getting in the way, M&A activity will take care of itself.”

“Lower and more predictable interest rates, fewer regulatory surprises, and easing trade tensions would give boards and buyers the confidence to plan again,” he said. “When that happens, consolidation comes back naturally, not because companies are desperate, but because buying becomes a faster and less risky way to grow than building from scratch.”

The bear case is not about technology suddenly breaking, Sagie points out.

“It is about hesitation,” he said. “If rates stay high, geopolitical noise continues, or capital markets remain jumpy, buyers slow down. Decisions take longer, deals get smaller, and only the transactions with a very clear strategic rationale actually close. What separates the two is confidence. When executives believe they can underwrite the next three to five years with some degree of certainty, M&A moves quickly. When that confidence is missing, even good assets struggle to transact.”

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• Crunchbase Predicts: IPOs Picked Up In 2025 And The Outlook For 2026 Is Even More Optimistic 
• M&A The Highest On Record For Unicorn Exits In 2025
• With �ҴǴDz�����’s $32B Bid For Wiz, Big Exits Are Finally Picking Up
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In 2024, slightly less than half of planned, highlighting significant disruptions in the startup ecosystem due to market volatility and economic uncertainty.

Traditionally, IPOs have been pivotal exit strategies for venture-backed companies, enabling them to access liquidity and fuel growth. However, current market conditions have challenged their reliability, forcing many companies to reevaluate their paths to public markets. That’s why I’d like to delve into why companies are facing these challenges, but also how to adapt and explore alternative strategies.

Navigating delayed IPOs

Delayed IPOs significantly impact businesses, investors and employees. Market volatility, economic downturns and geopolitical tensions all create uncertainty, prompting companies to reconsider IPO timing and compressing the IPO window.

also deter IPO launches, as market corrections and heightened investor caution lead to diminished startup valuations. Regulatory scrutiny, with its evolving standards and stringent reporting requirements, adds another layer of complexity. Lastly, investor sentiment, whether bullish or pessimistic, directly influences IPO activity.

Stakeholders across the spectrum feel the pinch of delayed IPOs. Late-stage startups face funding shortfalls, while venture capital firms encounter extended timelines for their exits, complicating future fundraising.

Employees face consequences as well, as delayed IPOs affect stock option values, which are often central to their compensation packages.

Emerging risk profiles: valuation and financial risks

Delayed IPOs create a cascade of interconnected risks for startups. One of the primary concerns is valuation risk, where companies unable to meet their target IPO valuations may be forced into accepting down rounds. A down round means new financing occurs at a lower valuation than previous funding rounds, which can severely damage investor confidence.

This problem is compounded by a lack of liquidity; with IPOs delayed, investors face prolonged illiquidity, limiting their ability to capitalize on investment gains. This reduced liquidity strains investor patience and can pressure venture capitalists to seek alternative exit strategies, sometimes leading to hastened decisions.

Unfortunately, illiquidity also leads to significant financial risks. Startups reliant on IPO proceeds often face funding shortfalls and increasingly turn to debt financing. While this approach can temporarily ease cash flow pressures, it heightens financial vulnerability by increasing leverage and interest obligations, which may limit a company’s financial flexibility in the long term.

Moreover, these conditions can expose weaknesses in startups with unsustainable business models. Companies heavily dependent on continuous external funding may find their operational weaknesses starkly exposed when the IPO route is closed, risking insolvency or forced mergers and acquisitions at unfavorable terms without rapid adjustments.

IPO alternatives and risk management solutions

In this challenging environment, despite several companies kicking off roadshows, alternative exit strategies are becoming essential for startups. Mergers and acquisitions have gained prominence, with companies strategically aligning with larger entities to benefit from synergies, immediate financial returns and reduced market uncertainty.

Beyond M&A, other options have also emerged as viable paths to liquidity. For example, a direct listing allows a company to go public without issuing new shares, providing liquidity to existing shareholders without the typical IPO fanfare. Private equity buyouts also offer an by allowing a private equity firm to acquire a controlling stake in the company, providing an immediate exit for founders and investors.

Robust risk management solutions are also critical. Startups can proactively manage cash flow and anticipate funding shortfalls through accurate financial planning and forecasting. Streamlining operations, optimizing resource allocation and controlling costs can strengthen financial resilience, while detailed contingency plans ensure agility.

Additionally, comprehensive insurance solutions, such as directors and officers and errors and omissions coverage, protect startups and their leadership from financial and legal liabilities, maintaining stakeholder confidence amid uncertainty.

Best practices to avoid legal pitfalls

Directors and officers have fiduciary duties, which legally oblige them to prioritize the best interests of the company and its shareholders, ensuring responsible decision-making. Simply put, accuracy and transparency are crucial.

Regulatory compliance must be a priority. Failure to adhere to these regulations can result in significant legal and financial repercussions, undermining investor confidence and potentially jeopardizing the company’s future viability.

Companies should prioritize long-term sustainability and value creation, resisting pressures for short-term gains. By adopting these best practices, businesses foster investor confidence,, and ultimately position themselves for sustained success.

is the COO and co-founder of . Previously, he spent the first years of his career in roles across the venture ecosystem. From venture due diligence at to growth hacking and modeling for portfolio companies at to M&A negotiations at , he’s seen how companies succeed (and fail) from all angles. Niedbala is energized by the possibility of rethinking the way the insurance industry works through technology, best-in-class customer service, and cutting-edge marketing and branding. In 2021, Founder Shield joined , where Niedbala now leads digital product strategy and innovation.

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• 5 Companies Kick Off IPO Roadshow

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StubHub, which operates a marketplace for tickets to live events, had priced shares for its offering at $23.50 each late Tuesday, right in the middle of the projected range. Shares closed down 6% at $22.

The offering raised $800 million for the company, whose shares are trading on the under the ticker STUB. It set an initial valuation of around $8.5 billion.

The offering has been a long-time coming for New York-based StubHub, which was founded back in 2000 with the aim of offering a centralized marketplace for reselling tickets. The startup later caught the attention of , which acquired it in 2007.

In 2019, the business sold for $4.05 billion to , a ticket marketplace founded by StubHub co-founder , who was ousted from the latter in 2004. The tie-up included backing from , and , which respectively own 25%, 12% and 9% of Class A shares in StubHub.

The IPO follows a period of modest sales growth for StubHub, which reported revenue of $828 million in the first half of this year — up about 3% from a year ago. The company posted a net loss of $76 million for the first half of the year, up from $24 million in the year-earlier period.

StubHub initially filed to go public in March but delayed its debut amid a market downturn that commenced shortly afterward. IPO activity has subsequently picked up again, with StubHub one of several larger recent debuts, including well-received entries last week by consumer fintech and blockchain lender . Concurrently, we’re also seeing heightened buzz around potential new market entrants.

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• The IPO Market Is Opening Up. These 14 Companies Could Be Next.

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Then, the SPAC and IPO boom of 2020-2021 arrived. All of a sudden, companies in scores of sectors once confined to venture capital portfolios were widely available on public markets. Developers of technologies tied to self-driving vehicles were particularly well-represented, launching market debuts with collective initial valuations of over $50 billion. 

But investors’ love affair with the space didn’t last. A Crunchbase analysis of 14 companies developing technologies tied to self-driving vehicles 1that went public in the past couple of years shows an average post-debut decline of more than 80%.

The worst performers—a list that includes autonomous truck developer and LiDAR technology companies and —are down over 95% or more. Both Quanery and Embark also completed reverse stock splits this year to lower the danger of delisting, only to see further valuation declines.

For a full rundown of how these 14 companies have performed, we put together a chart, seen below, showing valuations at time of debut compared to now:

VCs are still investing

Given the public market’s rapidly decelerating interest in the space, one might expect to see venture investors put the brakes on big rounds for private companies tied to autonomous driving. That hasn’t entirely been the case.

We’re still seeing some big rounds this year. For instance, London-based , developer of what it describes as a “next generation” autonomous vehicle technology driven by machine learning, pulled in $200 million in a Series B, bringing total investment to over $450 million. (It should be noted that this was in January, before public markets posted their most severe declines).

Meanwhile, , a developer of advanced roadways tailored for connected and autonomous vehicles, pulled in $130 million in an April Series A co-led by . Several China-based companies have also secured big rounds, including , a developer of autonomous vehicles, and , which focused on automating vehicle safety features.

Still, things are way down from 2021, particularly for large, later-stage rounds. We aren’t seeing financings similar in stage or size to last year’s biggest round in the space, a $600 million Series D for , which makes self-driving electric vehicles for local deliveries. Obviously, pre-IPO rounds aren’t happening either, given both the state of the IPO market and the condition of already public companies in this industry.

It’s not about profits

As we ponder the causes of the great 2022 sell-off of stocks related to LiDAR and self-driving vehicles, one possibility can immediately be stricken from the list.

No one is dumping shares in these companies because profits are down. They never had profits in the first place. 

It’s also unclear to what extent revenues might be a driver. Those that have sales are by-and-large early in their scaling, while others are still pre-revenue. This was never a bet on present earnings but rather on the future potential of a massive technological shift.

If we look at valuations of the worst performers on our list, it appears investors have mostly given up. 

Take Embark Technology, which develops software to power self-driving trucks. The San Francisco-based company was valued around $5.2 billion when it went public in November through a SPAC merger. It had raised over $117 million as a private company, pulled in another $614 million for its public offering, and counted and among its lead backers.

Just a year after its debut, Embark is valued at less than the cash reserves it had at the end of its last quarter. Shares are down a whopping 97% from their debut price. 

So, just to put it in perspective: This would be like if the price of your $1 million California house went down in a few months to just $30,000. It’s pretty catastrophic.

For Embark, which is pre-revenue, it’s tough to say what could be the catalyst for such a cataclysmic decline. By the same token, it’s also difficult to surmise what supported that $5.2 billion valuation just 11 months ago. Investors just aren’t paying what they used to for this kind of thing.

In coming quarters, it’ll be interesting to see which companies that went public during the 2020-21 window of opportunity have regained investors’ favor. For now, it’s looking like pretty much the whole autonomous driving unicorn herd has headed downhill fast.

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The layoffs amount to around 840 employees, and come less than a year after Rivian went public in the largest IPO of 2021. 

“Over the last six months, the world has dramatically changed with inflation reaching record highs, interest rates rapidly rising and commodity prices continuing to climb—all of which have contributed to the global capital markets tightening,” Rivian CEO wrote in an email to employees, according to the WSJ.

Rivian went public in November 2021, raising $11.9 billion through its IPO, Crunchbase data shows. The Plymouth, Michigan-based company was valued at $66.5 billion at the time of its IPO.

The company’s stock price is down around 68% since the beginning of the year, and had a market cap of about $29.6 billion on Thursday. The company warned employees earlier this month that layoffs were coming. 

Growth stocks have been hit hard by the turmoil in the public markets. More than 32,000 employees of U.S.-based tech companies have been laid off so far this year, according to a Crunchbase News tally. The tech industry and tech-adjacent companies like those in the electric vehicle and biotech spaces seem to be bearing the brunt of the layoffs.

Rivian has faced some production challenges since it’s been public as well. In March, the company cut its production forecast in half to 25,000 vehicles, pointing to a parts shortage, according to the WSJ.

Rivian is not the only electric vehicle company to conduct layoffs. also laid off some employees and closed an office in California after CEO said he had a “super bad feeling” about the economy. 

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The troubled IPOs from and (fresh record lows set yesterday), (off over 10 percent yesterday) and (off over 40 percent from its IPO price) have the broader media world perking up and asking questions. What’s going on?

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As and written lately, it seems that some recent technology-focused and venture-backed public debuts have been mispriced for one or two of a few reasons. These include slowing growth not being fully-factored into pricing (Uber), persistent or rising unprofitability (Uber, Lyft, SmileDirectClub, Peloton), and valuations set too high either while private (Uber), or going public at companies with gross margins far lower than what software companies earn.

The final point is something we covered yesterday. Namely that statups who earn revenue which generates lower gross margins than software companies are seeing public investors value them lower than some private investors anticipated. This, , should not be a surprise.

Software companies generate revenue which has attractive gross margins and often recurs. It’s coveted by private and public investors alike, each class of moneypeople being willing to allow software companies to lose money while they accrete more top line.

High margin, recurring software revenue is a revenue gold-standard of sorts. It regularly garners high valuation multiples. That makes it a good measuring stick. For example, if a company that generates non-recurring revenue with gross margins of, say, 50 percent, is valued like a software company, we can say that it’s likely overvalued.

But what if our measuring stick is broken? Yesterday we mapped the compressing revenue multiple of Peloton in the following way:

Shares in Peloton, a recent IPO, fell over 10 percent today to $22.51 per share. Peloton’s IPO price was $29 per share, valuing the firm at $8.1 billion. Today it’s worth $6.25 billion. At its IPO price, Peloton was trading for 8.8x trailing revenues (its fiscal year ended June 30, 2019). Today that same revenue multiple compressed to 6.8x.

We noted that Peloton is still worth more on a revenue-multiple basis than what old-school venture capitalists thought SaaS companies should be worth, also on a revenue-multiple basis.

That means that the revenue multiple gains enjoyed by SaaS companies could be expanding the window for companies with lesser-quality, allowing them to inflate their valuations; if something is worth a bit less than SaaS, say, but SaaS valuations double, what happens to the inherently less valuable company?

Provided that it can claim to be tech-ish, or tech-adjacent, or heading-towards-tech, perhaps it can get a higher multiple from private investors than it really deserves. Public investors make that decision far down the road, leading at times to unwelcome surprises.

Watching reprice on the public markets, watching private market dreams run into public market realities, and watching gross margin ambiguous companies continue to raise huge sums, I reckon that no one knows what things are worth right now. The market is too uncertain, the expansion too long, the private capital too free, and interest rates still too low. Not in a moral sense, mind, but in terms of where we are today compared to historical norms.

And so we’re seeing valuations try to sort themselves out on a relative basis but from no zero point. SaaS is a good high watermark, but if it’s inflated itself, how can we tell what anything else is worth?

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If you’ve been on Twitter the past few days and take part in the venture capital parts of the social media service, you’ll have seen a link or two from () discussing revenue quality. What he’s talking about, and why now, are good things to understand if you want to be current with the world of private companies.

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Let’s take a minute and understand what Wilson is discussing. He’s right as well, as we’ll see. So listen up, this stuff matters if you are in the startup game.

Quick Digression On Revenue

Revenue comes in varying levels of quality. That’s important to understand. It’s also a fact that becomes obscured when discussing startups, a market in which revenue growth is far more discussed (and championed!) than revenue ��ܲ������ٲ�.��This makes some sense, as the former is easy to understand, the latter more tricky to grok, and growth is something inherently easier to calculate and brag about than revenue quality.

And revenue growth can cover up for a revenue quality deficit as we’ve seen time and time again (, , , , etc.) That in mind, let’s listen up.

Fred Wilson

Let’s see what Wilson wrote. Here’s the key section from on the subject of revenue (condensed, formatted):

A narrative in the late stage private markets [is] that as software is eating the world, every company should be valued as a software company at 10x revenues or more. And that narrative is now falling apart.

If the product is software and thus can produce software gross margins (75% or greater), then it should be valued as a software company. If the product is something else and cannot produce software gross margins then it needs to be valued like other similar businesses with similar margins.

If that doesn’t make sense, let me help. Wilson, a venture capitalist with a pretty good track record and, more to the point for us, a propensity for writing correct things about his industry on the Internet, is arguing that revenue quality is a key factor to the value of your business.

That may sound incredibly obvious, but often firms are valued more on revenue scale (current top line) and revenue growth (pace of current top-line expansion), than what sort of gross margins that revenue generates. In case some of this isn’t making sense, gross margin is the portion of revenue that is left over after the revenue pays for itself.

The higher gross margin a company’s revenue is, the more that revenue is worth.

That is why software companies (returning to Wilson’s first paragraph) are often awarded high revenue multiples by public markets, while other industries are valued at lower revenue multiples.

Wilson’s post hit a nerve. Why? Because a number of recent IPOs that were expected to be huge successes wound up flopping (Lyft, , ), pricing lower than expected (Uber) or not happening at all (WeWork). In each case, Wilson highlighted, the struggling companies had margins lower than those usually generated by software companies.

And the public markets weren’t buying at the prices that private investors had hoped for. Wilson to add to his point, writing about the connection between valuations and margins:

Apple and Amazon were put forth as great lower margin businesses. Amazon is a roughly 25% gross margin business and trades at a little over 3x revenues. Apple is a roughly 40% gross margin business and trades closer to 4x revenues. I think that emphasizes the point that revenue multiples ought to reflect gross margins.

Many people argued that operating margins and growth rates should be the two numbers that matter most in valuing a business. I totally agree. But it is hard to have 40% operating margins if you have 40% gross margins. The truth is that operating margins will be highly dependent on gross margins. But there will be edge cases where that is less true.

Polygamy is banned in the United States, but I’d marry those two paragraphs if I could.

There should be a direct correlation between revenue quality, and a company’s constituent revenue multiple. And, the idea that a result further down in an income statement is more important than one higher up is silly (more on income statements here).

More Market Examples

Shares in Peloton, a recent IPO, fell over 10 percent today to $22.51 per share. Peloton’s IPO price was $29 per share, valuing the firm at $8.1 billion. Today it’s worth $6.25 billion. At its IPO price, Peloton was trading for 8.8x trailing revenues (its fiscal year ended June 30, 2019). Today that same revenue multiple compressed to 6.8x.

Why? Because the company’s blended gross margins are just over 40 percent. That’s miles from a software company’s 70 to 85 percent gross margin range.

Notably, both Peloton’s original IPO revenue multiple and its current revenue multiple are higher than the range that Wilson (i.e. companies with better gross margins) years ago. So it’s not like Peloton isn’t well-valued today; it is, and you could argue that even its new revenue multiple is rich for its margins.

But what about growth? That impacts revenue multiples as well, right? Yep. Indeed they do! You can think about a company’s revenue multiple in the following way:

Correct revenue multiple = (revenue growth + revenue quality + operating margins)

How much weight to give to each is different for each company; a firm with faster revenue growth can get away with a lower level of revenue quality (to some degree, for a short period of time) and secure a similar, correct revenue multiple as a company that had higher revenue quality and lower growth. A firm with high revenue growth and good revenue quality could still be dragged down (in a multiple sense) if its cost structure made its operating margins insidiously negative, and so forth.

All Wilson is arguing is that the middle term in our little faux equation should be taken into account by private investors, because public investors are going to pay it mind. It’s the opposite of an intemperate point. It just seems odd counter-narrative as there are so many unicorns out today that like to talk growth, but not margins.

We need to wrap as we’re over 1,000 words which means that I am in danger of talking to myself. To sum, then, the recent IPO issues we’ve seen from unprofitable companies with slimmer-than-software margins and slowing growth, or expensive growth, should not surprise.

They should, instead, be reminders that the basic fundamentals of business adapt to new models over time. But they never go away.

Illustration: .

, in vacation mode, , so I’ll keep this one short, sassy, and sweet.

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This week ���󾱲����������ٱ����amazing immigrant founders, covered treadmills, and pulse checked upcoming IPOs, so let’s get right into it.

Starting with the big one, Peloton, an exercise equipment company which sells “happiness,” filed its S-1. Here’s a deep dive on the big numbers, and then skim this for talking points so you sound smart at your next networking event.

After that, keep reading along with our piece on how early-stage international transportation startups aren’t intimidated by Uber. And in an odd turn of events, a 7-year-old startup bought Lord & Taylor, a 193-year-old department store chain.

Moving to some nine-figure funding rounds, Enjoy raised $150 million�����Ի���ThoughtSpot got to unicorn status with its $248 million Series E. Smaller rounds include The Long Term Stock Exchange raising $50 million�����Ի���Ethos raising $60 million, completing its third raise in 14 months. More, as always, in Last Week In Venture.

We switched sides of the table with a few new international funds this week: to invest in homegrown startups, Latin America’s Kaszek Ventures closed two funds totaling $600 million, and Israel’s F2 Capital raised $75 million for its second fund.

Finally, jokes aside, for those of you that do have Monday off: I dare you to not be online all day. As I unpack in my second edition of the Loneliness In Tech series, using social media, at a certain point, makes us more lonely, not more connected.

We all stare at screens enough already, so take advantage of a couple face-to-face moments with friends and family instead.

Until next week,

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Here are some things that are true: A goodly number of tech companies are going public this year. Many of them were valued at $1 billion or more while private. The IPOs have often been long-awaited. And, the companies in question are often quite unprofitable.

This creates a rolling conundrum, where hype meets quite a lot of reality. IPO, for example, was going to be a big deal regardless of what its numbers showed. They did, however, show a huge amount of red ink and slowing growth. So, the conundrum came into play. Unicorns have been long-awaited, but what happens when that which you have waited for still loses money?

The answer, of course, is that the unicorns still go public, but are just worth less than they wanted. Or much less, in the case of Uber.

Notably, even with the situation being roughly what we’ve described, the unicorn IPO run is bringing companies so large to market that their public debuts are skewing the stats on unprofitable offerings. According to a this morning, the number of unprofitable companies that are also part of the 25 largest IPOs during the current cycle is staggering:

Now think about 2019, and Uber.

Uber and and posted huge, unprofitable debuts, so we can put those into the 2019 column. I wonder if we’ll see a higher, final tally from this year’s IPO crop when it comes to the percentage of the largest IPOs that feature unprofitable companies, but the trend is very clear. More, large, profit-free public offerings.

Not that we didn’t see this coming. It’s just that today news dropped that is slowing at the same time that the current American president is firing off tariffs like a cure-all from the 1800s. So are these unicorns getting out now because it’s time, or because it soon won’t be?

Regardless, here’s what’s coming up in IPO-land. I’m excited.

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IPO last week was an important moment for the unicorn era: Could a company with slowing growth and persistently sharp losses defend its private-market value or IPO price? The answer so far is no and no.

With Uber’s equity off 8.5 percent as of the time of writing ($38.02 per share, or a value of $63.78 billion), the firm is now worth less than it was as a private company, let alone the $45 per share at which it went public. It’s a disappointing result, and not one that can be fully blamed on market conditions.

Let’s make two points this morning. First, let’s remind ourselves about some common wisdom from Silicon Valley. Following, let’s kick the knees out from under some historical revisionism that is being bandied about in defense of Uber. You know, that old “Amazon lost money while going public and did fine, Facebook’s shares fell after its IPO and it did fine” argument.

If This, Then That

Cover young, technology-related, growth-oriented companies long enough and you’ll hear a few saws trotted out as conversation blockers. The first for us today is the old chestnut that “great companies can always raise.” It isn’t true, but it is meant to indicate that the strongest startups won’t ever run out of capital because private investors will always be able to see past market conditions to provide cash to the most promising outfits.

Again, false, but what is true is that companies perceived to be the hottest things around can always raise. That’s a related, but notably different point.

Corollary to the first concept is one that’s even more interesting: “Great companies can always go public.” I hear this mostly when I ask a private-market investor about things like IPO windows. It’s a defensive response, but one that I think is sincerely held.

And then there’s Uber which made the case for the first point being true during its period of hyper-growth. And it �������Dz�����made the second point, managing a large IPO during a challenging week of macro and market fear. But then its shares fell sharply on their first day, capping off that disappointment with more losses today. So Uber has shown that companies can go public during periods of turmoil provided that there is enough demand for their shares (this is nigh-tautology but hear me out), but it has also shown that companies which get over the IPO-hump on brand more than fundamentals can get spat back up like a piece of gristle.

Are we being too harsh to Uber? Some would argue yes. After all, some of tech’s largest players today, firms like Facebook and Alphabet, struggled after they went public. Couldn’t Uber be more of the same?

(Update: Uber itself made the point this morning, “Remember that the Facebook and Amazon post-IPO trading was incredibly difficult for those companies. And look at how they have delivered since.”)

No

No. For a few reasons, which we’ll explore now.

But before, let’s make some allowances: The market is fickle and impossible to predict. Uber’s result likely would have been better had the market not decided it wanted to get sick all over itself during its early trading days. And Uber could turn around its business, find efficient sources of growth, cut its losses, and drive its shares out of the ditch (now off 9.12 percent as of the time of writing this paragraph).

If that happens, however, the examples of the Facebook and Alphabet IPOs as historical precedent for the Uber turnaround. The companies are not comparable. For a few reasons, which we detail below:

• $ operating profit, trailing 12 months at IPO: $423.8 million.
• $ operating profit, trailing 12 months at IPO: $1.75 billion.
• $ operating profit, trailing 12 months at IPO: -$3.03 billion.

And in those metrics we’ve done Uber a favor by not counting its preliminary Q1 2019 results. Instead, we used its fully-accounted 2018 quarters which sport a smaller aggregate operating loss.

As you can see, there is a difference between Alphabet and Facebook, and Uber. You can repeat the experiment with growth rates as well, which I recommend that you do (S-1/As are linked in the companies’ ticker symbols).

But what you see above are two companies that were hugely profitable before they went public. And even then they struggled somewhat. Alphabet’s reverse dutch auction was a bit of a mess , and Facebook’s uncertain mobile future weighed on its shares. But since both companies were nicely profitable, and in the latter case cracked the key question regarding its future, they took off and did more than fine.

Both Facebook and Alphabet were younger at the time of their IPOs than Uber was, and they made money. That’s the difference and the reason why their success bears little to do with what may happen with Uber—at least in the short and medium-term.

Making money is better than losing money, I should point out. So while it may be true that Uber pulls through and stems its losses and finds growth and all that, reaching for examples like Alphabet and Facebook is a mistake. Which reminds me, I really do need to finish my post explaining why Amazon’s unprofitability during its youth is no excuse for money-losing unicorns to continue to lose money. Next time!

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