I believe that we have seen a narrative in the late stage private markets that as software is eating the world (real estate, music, exercise, transportation), 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, but maybe at some premium to recognize the leverage it can get through software.
But we have not been doing it that way in the late-stage private markets for the last five years.
I think we may start now that the public markets are showing us how.
In general private market pricing is tough but there are some guidelines. However what happens is that along the way valuations just get silly – founders and VC’s are both to blame.
To put it even more simply than Dan and Fred – the silliness is coming to an end.
Expect Southeast Asia to feel it next.