Investing in Startups – The End of the Unicorn Concept, the Rise of the Centaur Concept.
Centaurs are startups generating at least $100M in ARR.
Bessemer Venture Partners has just published a report entitled “State of the Cloud 2022” which proposes to stop focusing on the valuation of software startups (SaaS). The authors of the study call for a change in mindset:
“Historically, valuations have been the primary measure of success in private cloud markets. But the unicorn rush is getting out of hand.”
This magical animal, which represents a startup valued at more than $1 billion, was a rare species in the tech world a few years ago. In the first quarter of 2022, there were more than 1,000 of them worldwide. A club not as closed as before:
The end of 2021 saw the birth of an unprecedented number of new unicorns, most of which did not fully deserve this status, as their sales figures are so low. Valuation multiples have reached record highs (30, 40, and even 50 times revenues!).
The abundance of capital due to the ultra-accommodating monetary policy of the main central banks is not unrelated to this, as the report points out:
“The abundance of capital has created an environment where valuations have sort of lost their meaning. The only thing we can really conclude about a unicorn today is its ability to attract investor interest. This has unfortunately led many startups and investors to focus on valuation as their primary goal, instead of building a big business.”
Bessemer Venture Partners introduces the more rational concept of centaurs
Bessemer Venture Partners introduces the concept of a centaur. It refers to startups with annual recurring revenue (ARR) - the most common way to generate revenue in the SaaS world - exceeding $100 million. This is a much more rational view for most firms that accompany investment funds and startups in their financing operations (fundraising, acquisition ...).
The American fund estimates that there are 150 centaurs, of which 60 were born in 2021:
That's seven times rarer than a unicorn! Among them are SalesLoft, Cloudinary, Iterable, Deel (a startup of wage portage founded), and Dataiku, a Parisian company that moved its headquarters to New York in 2016. This unicorn specialized in artificial intelligence has exceeded $150 million in ARR in March 2022.
A glaring inequality between America and Europe
This 100 million threshold is not for everyone. For many analysts, it is something more suited to America than to Europe:
“It's a very Anglo-Saxon view. Reaching 100 million ARR is harder in Europe than in the US, because the European market is much less homogeneous.”
Very few European startups communicate on this metric, which is often considered too competitive.
In France, the example of the neo-bank for VSE-SMEs Quonto is interesting to observe. The startup is well on its way to joining this very closed club, and even more so in Europe. Generating 50 million ARR in two or three European markets is already a great achievement. But for many, the most important thing is not to look at the absolute number, but rather at the growth of the ARR.
At a time when valuations are being revised downwards and large fundraisings are becoming increasingly rare, the level of ARR has never been so scrutinized. This centaur name proposed by Bessemer Venture Partners could be developed, and this concept could finally take over from the unicorn concept, which has lost meaning in recent months.
A new and very select club would then emerge: that of the centaurs. The competition never stops as you can see.
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