Last week, Charlie Ross from Livingbridge and executive search firm Erevena hosted a breakfast discussing how private equity firms value IoT companies.
Valuing IoT businesses can be difficult with technology, market potential and financials all influencing factors. We aimed to give some insight from a private equity firm perspective about how investors consider how much these businesses are really worth. Charlie Ross gives his key highlights:
“Mid market private equity valuation considerations are likely to feel quite different from that of early stage VC investment and from strategic acquirers. One of the most notable differences as IoT businesses grow is that there should be a maturity of the customer value proposition and customer reference points. These should demonstrate an addressable market with a real need and desire to switch from incumbent solutions.
We discussed how valuations for IoT businesses remain at the higher end of comparable TMT assets, and are likely to continue to do so. As the market matures though we are seeing it starting to fall in line with traditional financial metrics, such as multiples of revenue (and eventually profit later down the line). Data suggests IoT assets are at the top end of the 3-6x ARR SaaS metrics, but due to the relative immaturity of the subsectors within “IoT” assets needs to be assessed on a case by case basis.
Because IoT assets are so highly sought after by trade buyers, you do often see strategic valuations surpassing traditional financial metrics. However private equity firms can certainly still compete with trade, and private equity investment in IoT businesses still has its place for businesses wanting to scale but retain control of their business strategy. Many entrepreneurs we meet, including those at the breakfast this morning, are worried about how to retain the culture, the innovation and in turn the ultimate value of the business they own.
For any businesses in the post revenue stage and looking to scale Livingbridge is actively looking for investments within many sub sectors of IoT and would like to hear from you. Please contact firstname.lastname@example.org.