Allocators and venture capitalists need to differentiate between high and low quality tech startups, analyzing their balance sheets for sufficient cash and path to profitability, and considering changes to public market multiples and risk premiums. Free cash flow growth is a critical metric in evaluating a company's potential for future success.
The due diligence process for investing in bloated software businesses now includes questions about net dollar retention, long term operating margin, and free cash flow as crude price to revenue multiples are no longer sufficient metrics.
There are 15 private companies valued over $10 billion while there are 60 public companies of the same value. Additionally, there are already 70 public companies with $1 billion in revenue for the next 12 months.
Choosing a less competitive space in SaaS can result in a profitable, small business, while entering a more saturated market can lead to faster growth and scale. Roughly 20-25% of tiny seed companies are bootstrapped with no technical founders.
The speaker mentions that multiple groups have reached out to offer up to $5 million to buy Repl.it stock, which has a currently estimated valuation of $200 million. They also list several other notable tech companies, including Flexport and Airtable.