I talk to a lot of CFOs, and one thing we all have in common - we love real paper. I’m a sticky note guy. In a world gone digital, I’m still scribbling notes and to-dos like it’s 1999.
But one thing we all hate? Managing reimbursements that live on sticky notes, screenshots, or Slack threads. Even the “Did you get my receipt?” messages feel like chewing glass.
That’s why I like what Mercury’s doing. They believe business banking should do more… like making reimbursements actually tolerable. Their free expense reimbursement template lets your team track, submit, and approve expenses without the back-and-forth.
In a few minutes, your crew can log mileage, categorize receipts, and generate a clean PDF ready for approval. No login. No commitment. Just a smarter way to handle what used to be a spreadsheet mess.
*Mercury is a financial technology company, not a bank. Banking services provided through Choice Financial Group, Column N.A., and Evolve Bank & Trust; Members FDIC.
The Awkward Exit: $150M to $300M Acquisitions
In the VC backed world, there’s a shorthand for exits:
$30 million? Write-off.
$1 billion? Gas up the jet.
But $150 to $300 million? … awkward turtle.
This grey zone of middle market M&A is where expectations and incentives unfortunately get misaligned. And if you’ve been part of a late-ish stage company that’s exploring an acquisition in the lower nine digit zip code, you already know how tricky it gets.
Welcome to the Grey Zone
Let’s say you’ve raised a Series B or C. You’ve taken capital at incrementally higher valuations along the way. The cap table is layered… angel investors, seed investors, early institutional, growth-stage funds. Everyone came in at different entry points, with different ownership targets and return hurdles.
At a $30M fire sale, there’s not much to react to. Everyone shrugs. That sucks. But most had mentally written it off already. net net, it’s below the collective line.
Would suck to get a Christmas card from this guy
At a $1B outcome, everyone wins. Even common shareholders are goin’ to Sizzler Steakhouse.
These are the stories LPs love to hear and GPs love to tell. Everyone’s pumped, and nobody’s faking a smile.
(Note: the $1 billion “failures” that will come out of the 2020/2021 time frame are an anomaly. Raising at 100x forward revenues and building a pref stack as high as the Northern Wall are symptoms of a related, yet different, misalignment.)
But in the $150M to $300M zone? That’s where things get spooky.
Some investors are in the money, others are taking a haircut. Founders are often walking away with generational wealth… $20M, $30M, $50M+… while the late-stage investors are like WTF I thought you were going to use our capital to ascend to decacorn status. When did you stop drinking the Koolaid?
Misaligned Motivations
Let’s break down the typical drama:
Founders are thrilled (and v. tired). Internally, they see the writing on the wall that it will be increasingly impossible to get this thing to a billion dollar outcome. Doing so may require rebooting the entire management team, launching an unknown second or third product, and navigating some annoying industry headwinds. Tens of millions in their pocket and a fishing boat looks real nice to someone who’s been poor through their late thirties. For many, this is a once-in-a-lifetime outcome. Remember… they only have one company in their portfolio, and most people don’t have to work again if they make $25 million
Early investors may be doing just fine, especially if they got in at a $20M pre. They 5x their money (nice!) and get to keep saying they’re “founder friendly” for the next fund. This checks the box.
Later-stage investors (the Series C or D folks)? Not so much. They underwrote to a +$1B scenario. Maybe even more. Their math just don’t math if you don’t get there, or die trying. They thought you were serious in your pitch deck nine months ago when you sold the dream of someday going public. If they’re only seeing a 1.3x or 0.8x return, especially if the round was recent, it’s not just disappointing, it’s a wasted bullet. They could have deployed that capital somewhere else, like your competitor whom they passed on to give you money.
So when management starts pushing the merits of a deal at $250M, the enthusiasm isn’t universal. Founders are energized. Some investors are ambivalent. Others feel like they’re being asked to co-sign a decision they wouldn’t have made.
And that’s when Larry David shows up.
That’s when you start to see the “can you just sign this consent?” emails that go days without a response. Investors want to be supportive, and protect their street cred in the founder community, but aren’t suckers. Founders want to close, but also preserve relationships. Everyone is calculating optics, since it’s a small universe we play in.
We Operate in a Market Distortion
No one is a “bad person” in this scenario. It’s a structural misalignment created by the venture model. As we established,
VCs play a portfolio game. They need a few 10x outcomes to offset the zeros.
Founders are all-in on one bet. For them, a $200M exit is prob the personal financial equivalent of a grand slam.
To tie this to fashion, my short but buff friend Colin would always say he was a size shmedium… he wasn’t a small, but he also wasn’t a medium. A shmedium nine digit offer might be the most rational business decision, but it feels like settling for the investor, and like winning the lottery for the founder.
And so we get false binaries: “Sell now for $80M, or raise and aim for $1B.”
How Employees and Founders Can Navigate This
So with that, there are enough online ramblings for VCs on how they should bet the ponies in this situation. What follows is an unabashedly founder / operator take on the matter…
If you’re building and thinking about what happens around or after Series A, this is where sequencing really starts to matter. A few tips from seeing this movie play out before:
1. Time Your Rounds
If you can reach $100M to $250M in enterprise value on existing Seed capital, consider exiting before you need to raise another round. Preserve ownership, avoid dilution, and reduce the chances of future misalignment.
A quick thought experiment… Would you rather 50% of a $100M outcome now, or 15% of a $400M outcome later?
Kind of a trick question. Because you have to risk adjust your chances of being able to grow the company into that second valuation, as well as your ability to raise and execute in unknown macro environments.
And what if that 15% is really 8% when the curtain closes? What if you get diluted to Damascus? Then you make less in absolute dollars, at a later date, and shouldered more uncertainty to get there. And probably deep fried your nervous system.
I know a founder who turned down a $100 million offer when he owned 30% of his company to embark on a sojourn that required four more years and three rounds of building, only to take a $300 million offer when he now had less than 10% (and no hair).
2. Negotiate Secondaries Early
Not to give financial advice… as an employee who’s mangled his hands trying to decide if he should sell during a secondary, knowing what I know today, I will always take some money off the table.
The price of the brick may continue to go up…
Marlo Stanfield sold to cover his Alternative Minimum Tax
But at least you have enough to cover the cost of exercising your other options and can pay the associated taxes that go along with doing so.
You don’t have to sell it all. (Once again, this is not financial advice, do not sue me, I need that money to pay my own AMT) but I personally would sell something. Anything. As rank and file employees, tomorrow is never promised. And even if it is, future secondary sales are not always permitted. And my kids need shoes that I can’t buy with a grant on Carta.
If you’re a founder, don’t wait until an acquisition to get liquidity. In your next big round, push for meaningful secondary. Ideally the kind of life-changing number you’d get in a $150M exit. Derisk. That gives you optionality later.
Is it bad table manners? IDK. But it’s possible. And closed mouths don’t get fed.
Yes, of course there are some naughty stories (insert Adam Neumann, the guy from that virtual conference thing Hopin) but the road to hell is paved with founders who got diluted before they could get theirs.
Always, always, always take some money off the table when given the opportunity. Time and liquidity wait for no man.
3. Understand Your Investors’ Math
Before taking funding, ask your VCs what success looks like to them. (And then ask again, seriously what does it mean for you, as a person and our deal partner?)
Ask logical questions about their portfolio construction. That includes the number of investments they make per year, the typical fund duration, and how far into the fund’s lifecycle they are. These are all knowable things. So go and know them.
Taxing Innovation
Cash burning startups might not pay Uncle Sam any corporate taxes, but they’re hit with an innovation tax when they attempt to avoid awkward outcomes.
How many $200M businesses are either:
Selling early for $70M because they don’t want to raise again… or,
Rolling the dice for $1B and blowing up on the bell lap?
A lot. And in the process, we’re likely killing off efficient, meaningful, profitable companies that don’t quite clear the billion-dollar bar.
Founders aren’t at fault. Neither are VCs. But the system isn’t great at supporting businesses that land in the “successful, but not legendary” tier.
Some unvarnished truths I’ve seen first hand:
Most exits aren’t +$1B.
Most founders aren’t evil for wanting a meaningful exit.
Most VCs aren’t villains for needing bigger ones.
And if you’re living in the grey zone? Be honest. Be transparent. And maybe take a hard look at whether that next round is really a bridge to a mid market trap.
This Week’s Benchmarks
TL;DR: Multiples are UP a little bit week over week.
Top 10 Medians:
EV / NTM Revenue = 15.7 (UP 1.0x w/w)
CAC Payback = 25 months
Rule of 40 = 51%
Revenue per Employee = $463k
Figures for each index are measured at the Median
Median and Top 10 Median are measured across the entire data set, where n = 146
Recent changes
Added: Bullish, Figure, Gemini, Stubhub, Klarna
Removed: Olo, Couchbase
Population Sizes:
Security & Identity = 17
Data Infrastructure & Dev Tools = 13
Cloud Platforms & Infra = 15
Horizontal SaaS & Back office = 19
GTM (MarTech & SalesTech) = 19
Marketplaces & Consumer Platforms = 18
FinTech & Payments = 28
Vertical SaaS = 17
Revenue Multiples
Revenue multiples are a shortcut to compare valuations across the technology landscape, where companies may not yet be profitable. The most standard timeframe for revenue multiple comparison is on a “Next Twelve Months” (NTM Revenue) basis.
NTM is a generous cut, as it gives a company “credit” for a full “rolling” future year. It also puts all companies on equal footing, regardless of their fiscal year end and quarterly seasonality.
However, not all technology sectors or monetization strategies receive the same “credit” on their forward revenue, which operators should be aware of when they create comp sets for their own companies. That is why I break them out as separate “indexes”.
Reasons may include:
Recurring mix of revenue
Stickiness of revenue
Average contract size
Cost of revenue delivery
Criticality of solution
Total Addressable Market potential
From a macro perspective, multiples trend higher in low interest environments, and vice versa.
Multiples shown are calculated by taking the Enterprise Value / NTM revenue.
Enterprise Value is calculated as: Market Capitalization + Total Debt - Cash
Market Cap fluctuates with share price day to day, while Total Debt and Cash are taken from the most recent quarterly financial statements available. That’s why we share this report each week - to keep up with changes in the stock market, and to update for quarterly earnings reports when they drop.
Historically, a 10x NTM Revenue multiple has been viewed as a “premium” valuation reserved for the best of the best companies.
Efficiency
Companies that can do more with less tend to earn higher valuations.
Three of the most common and consistently publicly available metrics to measure efficiency include:
CAC Payback Period: How many months does it take to recoup the cost of acquiring a customer?
CAC Payback Period is measured as Sales and Marketing costs divided by Revenue Additions, and adjusted by Gross Margin.
Here’s how I do it:
Sales and Marketing costs are measured on a TTM basis, but lagged by one quarter (so you skip a quarter, then sum the trailing four quarters of costs). This timeframe smooths for seasonality and recognizes the lead time required to generate pipeline.
Revenue is measured as the year-on-year change in the most recent quarter’s sales (so for Q2 of 2024 you’d subtract out Q2 of 2023’s revenue to get the increase), and then multiplied by four to arrive at an annualized revenue increase (e.g., ARR Additions).
Gross margin is taken as a % from the most recent quarter (e.g., 82%) to represent the current cost to serve a customer
Revenue per Employee: On a per head basis, how much in sales does the company generate each year? The rule of thumb is public companies should be doing north of $450k per employee at scale. This is simple division. And I believe it cuts through all the noise - there’s nowhere to hide.
Revenue per Employee is calculated as: (TTM Revenue / Total Current Employees)
Rule of 40: How does a company balance topline growth with bottom line efficiency? It’s the sum of the company’s revenue growth rate and EBITDA Margin. Netting the two should get you above 40 to pass the test.
Rule of 40 is calculated as: TTM Revenue Growth % + TTM Adjusted EBITDA Margin %
A few other notes on efficiency metrics:
Net Dollar Retention is another great measure of efficiency, but many companies have stopped quoting it as an exact number, choosing instead to disclose if it’s above or below a threshold once a year. It’s also uncommon for some types of companies, like marketplaces, to report it at all.
Most public companies don’t report net new ARR, and not all revenue is “recurring”, so I’m doing my best to approximate using changes in reported GAAP revenue. I admit this is a “stricter” view, as it is measuring change in net revenue.
OPEX
Decreasing your OPEX relative to revenue demonstrates Operating Leverage, and leaves more dollars to drop to the bottom line, as companies strive to achieve +25% profitability at scale.
The most common buckets companies put their operating costs into are:
Cost of Goods Sold: Customer Support employees, infrastructure to host your business in the cloud, API tolls, and banking fees if you are a FinTech.
Sales & Marketing: Sales and Marketing employees, advertising spend, demand gen spend, events, conferences, tools.
Research & Development: Product and Engineering employees, development expenses, tools.
General & Administrative: Finance, HR, and IT employees… and everything else. Or as I like to call myself “Strategic Backoffice Overhead.”
All of these are taken on a Gaap basis and therefore INCLUDE stock based comp, a non cash expense.
Please check out our data partner, Koyfin. It’s dope.
Wishing you minimal dilution as you capture your TAM,
CJ
