Last week, API API API Application programming interfaces, or APIs, are ways in which software products can “talk” to one another. They communicate by exchanging information or instructions. platform company Postman became India’s highest valued SaaS startup. It raised $225 million at a valuation of $5.6 billion.

While Postman is undoubtedly undoubtedly The Ken How Postman delivered a US$2 billion valuation Read more a success story, startup chatter was about its rich valuation. The company hasn’t publicly disclosed its revenue, but most informed estimates put its annual recurring revenue (ARR) in the $50-75 million range. At the lower end of this estimate, a $5.6 billion valuation represents a nosebleed 100X multiple.

Given that software-as-a-service (SaaS) firms have traditionally been valued at 10X of their topline, this 100X multiple seems not only rich but also, dare we say it, “bubbly”.

What explains this steep valuation? Is there something special about Postman, or is this just a sign of a broader change in the market?

Rise of the VC funding class

Early last year, when the world was waking up to the prospect of a global pandemic, venture capital (VC) investors everywhere sent out grim memos to their portfolio companies to hunker down and prepare for a long funding winter. In less than eighteen months since then, sentiments have gone to the other end of the spectrum. VCs are now exhorting their companies to raise larger and larger rounds and stockpile capital at progressively higher valuations.

Several things changed in the interim.

For most startups, the worst-case scenario of the pandemic didn’t play out. Instead, it accelerated the shift towards digitisation, creating powerful traction tailwinds. But more importantly, the world woke up to VC funding as a mainstream asset class with sovereign funds, hedge funds, and crossover funds like Tiger Global entering the fray. Growth firms, rather than traditional VCs, became became Crunchbase Growth Firms, Not VCs, Are The Most Active Investors In New Unicorns This Year, And They’re Doubling Down Read more the most active and bullish startup investors.

This veritable glut of capital has changed the means and bounds of startup funding. There used to be a time when startup unicorns, valued at over $1 billion, were rare. Today there are more than 820 unicorn startups collectively valued at $2.8 trillion.

Globally, venture investment is up 95% year over year year over year Crunchbase Global Venture Funding Hits All-Time High In First Half Of 2021, With $288B Invested Read more to at least $288 billion through the first half of 2021.

AUTHOR

Sumanth Raghavendra

Sumanth is a serial entrepreneur with more than eighteen years experience in running startups. He is currently the founder of Deck App Technologies, a Bangalore-based startup attempting to re-imagine productivity software for the Post-PC era. Sumanth’s columns appear regularly in leading publications. He holds MBA degrees from the Indian Institute of Management, Bangalore and Thunderbird, The American Graduate School of International Management, USA.

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