Software’s meteoric rise: Have VCs gone too far?

Steve Sloane is a partner at Menlo Ventures where he buys inflection-stage companies.

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Just 4 or five years earlier, outsized exits in the enterprise sector were outliers. In 2016, we developed the slide listed below (revealing worth at the time of IPO/acquisition) to demonstrate the dominance of large B2C exits. At that time, the 14 most considerable venture-capital outcomes originated from consumer companies, and the very first business outcome listed was LSI, a semiconductor business got for $6.5 B in 2014.

In both the private and public markets, assessments for B2B software application companies continue to climb. The average publicly traded cloud company trades at almost 12x forward income, while in the private markets, investors are significantly more aggressive. With record levels of personal capital, continued outperformance in the general public markets and an absolutely no interest rate environment, it can be hard to think of a motivation for decreasing this runaway software train (even the COVID-19 pandemic has not yet been successful!).

Image Credits: Menlo Ventures/CB Insights

Times have actually changed. In 2019 alone, 7 enterprise exits would make this chart (Slack, Qualtrics, Datadog, CrowdStrike, Cloudflare, 10x Genomics and Zoom). As I compose this, 14 enterprise software application businesses boast a market cap exceeding $20B.

To even more highlight this point, the two most important personal venture-backed businesses (Stripe and SpaceX) are both business organisations, and the leading 25 most valuable companies are now almost equally split between consumer and enterprise. We must expect the pendulum to continue to swing in favor of enterprise investing if this genuinely reflects the pipeline for the next generation of significant VC exits.