Pressure from the public markets is forcing startup valuations to dive. What started as a slow decline in software forward multiples in the public markets has now been characterized as a 57% dive from the high mark of March 2014. LinkedIn declined more than 40% last week depicting that the high fliers are falling the furthest.
What does this mean for startups? It may not be an immediate effect but it is undeniable that the startup ecosystem will feel it. We can anticipate a further drop in startup valuations. It will become a buyers or investors market. Good news for new investors and buyers, of course. For entrepreneurs, the time has come for a focus on cash flow and breakeven points where the business can be sustained by revenues. We can anticipate that typical revenue growth rates of 300% or 400% that require large capitalization will be replaced with a more conservative strategy of controlled growth to manage cash flow. It’s not the mindset that we have grown to expect. It may take longer to double revenue without raising millions in capital but the discipline of a well managed cash flow plan will ultimately be rewarding.