In this Chart of the Week, we’re comparing the valuation-to-revenue multiples of industries in both the private and public markets. While some of the industries are not exact matches, the comparisons still provide a nice visualization of just how much higher private market valuations tend to be in similar industries. (These are not the industries with the highest valuation-to-revenue multiples, but rather just the industries that we found most similar in the private and public markets.)
Note: For public companies, we used enterprise value and sales multiples.
As expected, the valuation-to-revenue multiples for public companies tend to be much lower than the revenue multiples of companies raising in the Regulation Crowdfunding and Regulation A markets. Startups are usually expected to see hypergrowth within three to five years of their investment opportunities going live. Therefore, investors are willing to pay a much higher premium on this future growth, leading to higher overall revenue multiples. Public companies, on the other hand, tend to be far more mature and developed with very stable future cash flows. Therefore, given the lack of hypergrowth, investors pay a far lower premium to invest in these types of public companies.
The Financial Services industry has the highest revenue multiple in the public markets at 23.49x. That figure is quite astonishing for an industry average of a group of public companies, which tend to be in the single digits. This unusually high revenue multiple can likely be attributed to these companies leveraging the internet, blockchain, and/or cryptocurrency to disrupt the finance industry. These “buzzy” companies can often attract large pools of new retail investors and can inflate valuations quite dramatically because they’re playing in a trendy market.
Energy, Power, and Natural Resources companies saw very high private market revenue multiples but single-digit public revenue multiples. This is not all that surprising. Energy startups are usually quite “moonshot”-like companies with massive upside and massive risk. These companies often develop new ways to make energy cleaner or more efficient. But these companies are often pre-launch or pre-product, so investors are investing in the long-term hypergrowth of the company. Public companies in the renewable energy space have usually already rolled out products and are far more stable and cash-flow-positive. Therefore, there is no hypergrowth to invest in, which pushes down the overall revenue multiple of the industry.
Note: All data on online startup investing used for the Chart of the Week comes from the KingsCrowd database and represents a snapshot of the U.S. crowdfunding market.
