An IPO at a valuation that's flat compared to the last private round suggests the company is distressed. It implies the private markets are tapped out and the company is being forced to go public out of a desperate need for capital, rather than from a position of strength.
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A massive valuation for a "seed" round can be misleading. Often, insiders have participated in several unannounced, cheaper tranches. The headline number is just the final, most expensive tier, used to create FOMO and set a high watermark for new investors.
Similar to the short-lived direct listing wave, the idea of staying private indefinitely will likely only apply to a handful of elite, capital-rich companies like SpaceX. The vast majority of successful startups will still follow the traditional IPO path to provide liquidity and access public markets.
Contrary to the prevailing wisdom of staying private as long as possible, VC Keith Rabois counsels his portfolio companies to pursue an IPO once they hit ~$50 million in predictable revenue. He believes the benefits of being public outweigh the costs much earlier than most founders think.
A significant shift has occurred: private equity firms are no longer actively pursuing acquisitions of solid SaaS companies that fall short of IPO scale. This disappearance of a reliable exit path forces VCs and founders to find new strategies for liquidity and growth.
In the current market, companies prioritize liquidity and public market access over protecting previous private valuations. A lower IPO price is no longer seen as a failure but as a necessary market correction to move forward and ensure survival.
Valuations don't jump dramatically; they 'sneak up on you.' An investor might balk at a $45M cap when they expected $40M. But the fear of missing a potential unicorn is stronger than the desire for a slightly better price, causing a gradual, batch-over-batch inflation of valuation norms.
For high-growth companies, reaching a $100M ARR milestone no longer automatically triggers IPO plans. With abundant private capital, many founders now see going public as an unnecessary burden, preferring to avoid SEC reporting and gain liquidity through private growth rounds.
To generate returns on a $10B acquisition, a PE firm needs a $25B exit, which often means an IPO. They must underwrite this IPO at a discount to public comps, despite having paid a 30% premium to acquire the company, creating a significant initial value gap to overcome from day one.
Navan's IPO stumbled despite decent growth and improving margins, not because of its own fundamentals, but due to its relative unattractiveness. In the current market, public investors prefer putting capital into proven, profitable tech giants with strong AI stories over an unprofitable company at a high sales multiple.
The founder advises against always pursuing the highest valuation, noting it can lead to immense pressure and difficulties in subsequent rounds if the market normalizes. Prioritizing investor chemistry and a fair, responsible valuation is a more sustainable long-term strategy.
