Bill Ferris says venture capital funds will need to rethink how they revalue portfolio companies, tipping more down rounds than up rounds.
Start-up founders and investors should brace themselves for yet more pain as the tech downturn deepens and valuations fall in the near term by 50 per cent, veteran venture capitalist Bill Ferris has warned.
Although deal volumes and total values have declined, valuations of private companies are more opaque and frequently not revealed. But investors across all stages of the start-up ecosystem say revenue multiples have come back from the lofty levels recorded in the second half of last year.Mr Ferris said profitability would be back in vogue and investors would look more carefully for pathways to cashflow positivity when assessing any investment opportunities or revaluing portfolio companies.
A former innovation czar under the Turnbull government, Mr Ferris has a long history in the sector, having started Australia’s first venture capital fund in 1970, and co-founding Australian Mezzanine Investments in 1987 and CHAMP private equity in 2000. Since 2020, he has been chairman of Brandon BioCatalyst .The Australian Prudential Regulation Authority , in a review last year, found that unlisted revaluation frameworks used by superannuation funds were inadequate.
But some US-based crossover funds have already started marking down portfolio company valuations, including “I know many super funds have given [the APRA review] a lot of thought, but I’ve seen two sides of the equation … and I don’t think [the industry] has landed on a position yet.”
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