Startup valuations are said to drop, but other factors may be more important


Does it matter that startup valuations are falling?

The short answer is: yes, of course it is. If you run a business that is looking to raise capital, a lower than expected valuation will mean that you will have to hand over more equity to investors in order to raise the funds you need.

But according to Katy Wigdahl, CEO of the Cambridge-based voice recognition technology company, Speechmatics, there is a longer answer. Speechmatics just raised $62 million in a Series B funding round led by Susquehanna Growth Stocks with existing investors Albion Resume and IQ Capital also participate. According to Wigdahl, a high valuation should not necessarily be the North Star when it comes to selecting investors.

Cause for concern?

This year has seen a sort of panic around valuations. In the post-pandemic period, tech stocks on the public market have fallen. This, combined with renewed caution on the part of investors, has translated – at least anecdotally – into lower valuations for private companies. The immediate impact of this could be that companies entering the market may find it difficult to raise funds on terms they consider acceptable.

Obviously, it is in no one’s interest for valuations to slide to a level where fundraising becomes genuinely difficult, but Wigdahl’s view is that the proposed valuation should only be a factor for determine whether or not to enter into a transaction. So when I spoke to him – coincidentally on the same day the Bank of England released its gloomiest economic forecast in a generation – I was eager to learn more about these other factors.

Founded in October 2006, Speechmatics operates in a relatively crowded speech recognition market where long-term success is likely to be determined by the quality of the technology on offer. For its part, Speechmatics has developed a multilingual solution and the current objective is to develop a system capable of understanding the nuances of each human voice. Not surprisingly, machine learning and artificial intelligence are key technology components.

Why Series B?

As Wigdahl explains, much of Speechmatics’ progress to date has been bootstrapped, but the decision to embark on a Series B augmentation was driven by an ambition to drive growth in the face of competition. fierce. Investments were needed not only to continue research and development, but also to give the company more marketing clout. Wigdahl cites establishing a stronger presence in North America. “Over 60% of our revenue comes from the US, but everything is booked through the UK,” she says.

Wigdahl is clearly proud of the company’s technology, which enables Speechmatics to win markets in industries such as media (captions), banking (transcriptions) and education technology (text accompanying content audio-visual). But perhaps surprisingly, she and her team didn’t feel the need to chase the highest valuation.

“Last year was very hot (for valuations),” she says. “So I spoke to investors to understand the multiples.”

And as she discovered, there was a huge range of valuations on offer – and in some cases there was very little due diligence going on. “What we wanted to do was partner with an investor who really understood the business,” she says.

off the table

So Speechmatics took the valuation “off the table” and instead started looking at what investors could bring to the party. As a result, the company avoided some of the “crazy” valuations on offer and opted for the partner that could – Wigdahl believed – add the most value in terms of delivering the growth program.

But didn’t that mean giving up more equity? Wigdahl says companies should consider the circumstances. “Valuations matter when you go out. It’s not that important when you’re growing the business.

So the important thing was to choose a partner who could help put the company on a growth curve that would ultimately deliver better returns for everyone.

Susquehanna was considered a good partner in part because of its understanding of the market and its willingness to undertake extensive due diligence. This last point might surprise founders who dread the prospect of being grilled by potential investors, but Wigdahl says she found it refreshing. “For me, due diligence was kind of validation,” says Wigdahl. “It also helps you think about what you’re doing and focus clearly.”

Looking ahead, Susquehanna is seen as helping the company build a growth strategy while making introductions to portfolio companies. The objective is now to reach 100 million dollars in turnover in four years.

Wigdahl says she has taken a pragmatic view of evaluation. This may not be possible for everyone, especially in the current economic climate where fundraising may become increasingly difficult. But it’s a reminder that what ultimately matters is what the business is worth at the point of exit.


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