Infinite Revenue Multiples Explained
The TechCrunch Exchange: Year-End Reflections on Funding and Valuation
Greetings to readers of The TechCrunch Exchange, a weekly newsletter focused on startups and market trends. This publication draws inspiration from the daily TechCrunch+ column of the same name. Interested in receiving it directly in your inbox each Saturday? Sign up here.
As it is Christmas Day, the readership is likely limited. Acknowledging this, a greeting is extended to the few who are presently engaged with this content, perhaps those temporarily diverting from family obligations.
Before returning to social interactions, let’s consider two noteworthy items. This serves as a final opportunity for engagement in 2021. Thank you for your readership; it is genuinely appreciated.
Airbyte’s Funding Round: A Notable Event
The most compelling story of the week wasn’t a critique of web3, but rather a significant funding event. While the funding round itself wasn’t particularly unique, the circumstances surrounding Airbyte’s raise were.
Airbyte is an open-source company specializing in data movement solutions. This addresses a substantial need, as vast quantities of data require relocation between systems. Successfully managing this process can be complex. The core market Airbyte operates within relates to extract, load and transform (ELT) processes, though a detailed explanation isn’t necessary at this point.
Business Model and Growth
The company offers a free, open-source product alongside a paid service. The paid offering includes standard enterprise features, such as Single Sign-On (SSO) and hosting services. This represents a typical open-source software (OSS) business model.
According to Crunchbase, Airbyte secured a seed funding round earlier in 2021. This was followed by a Series A round in May, bringing the total funding for the year to over $30 million.
However, this amount paled in comparison to their recent achievement. Airbyte recently completed a $150 million Series B round, resulting in a valuation of approximately $1.5 billion. Remarkably, the company’s current annual recurring revenue (ARR) is less than $1 million.
A humorous observation on Twitter suggested a revenue multiple of 1,500x, which garnered attention.
Subsequent information indicated that the actual revenue figure may be even lower than initially estimated. This implies an ARR multiple exceeding 1,500x.
This is an extraordinary situation, indicative of the venture capital landscape in 2021. What does this signify? Consider the following:
- Larger investment funds have been deploying capital at earlier stages of a startup’s development, aiming for increased capital allocation in subsequent funding rounds.
- Consequently, more startups have been able to secure substantial funding based on market enthusiasm (FOMO) rather than demonstrable revenue.
- The influx of capital in 2021 further amplified these trends.
- Reports surfaced of Series B rounds being completed with six-figure ARR, a departure from the previous standard of $1 million ARR as a minimum for a Series A round in 2019.
- With Airbyte as an example, there appears to be no practical upper limit on valuation relative to revenue.
Factors Contributing to Airbyte’s Valuation
What enabled Airbyte to achieve this valuation? A key factor is the availability of compelling non-revenue metrics for open-source companies to present to investors. These metrics include usage statistics and contribution data for their open-source projects.
It is hypothesized that Airbyte demonstrates strong community engagement, even if its paid products are still in early stages of development.
Is the Airbyte round an irrational investment? That remains to be seen. What is certain is that investors identified sufficient data to justify a nine-figure investment at a ten-figure valuation, despite comparatively limited revenue.
This development is a positive indicator for open-source startups.
Introducing Juna
Recently, I had the opportunity to speak with Peter Arian, founder and CEO of Juna, to discuss the company’s innovative approach. Juna is collaborating with insurance companies to offer affordable sexual wellness testing to individuals who are sexually active.
The startup employs a combined direct-to-consumer and health technology strategy, specifically geared towards younger demographics. Its aim is to redefine testing as a proactive health practice, rather than a reactive response to concerns.
It’s worth noting the potential influence of recent events; the increased frequency of testing during the COVID-19 pandemic may have normalized the process for many. I myself am scheduled for a COVID test shortly, a routine aspect of contemporary life.
Juna’s appeal extends beyond its product offering. The company’s marketing strategy is particularly noteworthy, demonstrating effective use of social media platforms.
Specifically, Juna is successfully utilizing TikTok to drive business growth. According to Arian, the company’s access waitlist is expanding at a rate of 15% to 20% monthly, indicating strong interest.
A February launch is currently planned, providing Juna with further opportunity to grow its waitlist. The continued success of their TikTok strategy could be a key factor in this expansion.
The company is currently in the process of securing funding, with the round not yet finalized. I plan to reconnect with Arian upon completion of the funding round and the opening of the waitlist.
While the subject of testing may not be conventionally appealing, Juna is presenting it in a new light. The concept of proactively ensuring the health of sexually active individuals is a unique and potentially impactful approach.
—Alex