In Part 4 of the SaaSpocalypse series, Neil Blankstone covered a lot of ground: the shift from model-led to market-led valuation thinking, why AIM looks cheap relative to private market comparables, the mixed signals coming from government and the FCA, and what it actually takes to make an investor commit right now.
Neil provided extended written answers to questions from the session, and several of the most substantive points did not appear on screen. What follows draws on that additional material - specifically on what drives value erosion in a tighter capital environment, how different parts of the market are operating under very different valuation disciplines, and why the gap between theoretical and executable value is finally closing.
There has been a clear shift in how clients approach valuation. It has moved from being something companies think about around a funding round or exit, to something used as a continuous decision-making tool.
Clients are now asking: how does this valuation impact our fundraising strategy? How does it influence investor perception? What happens under downside scenarios?
The practical implication is that businesses need to be able to present not just a number, but a range – with sensitivity analysis, downside cases, and a clear view of the assumptions that drive each. The shift away from anchoring to a single figure is already well underway among institutional investors, and it is increasingly where private investor expectations are heading too.
The broad point is well understood: businesses relying on narrative rather than evidence are finding it harder to raise. But it is worth being specific about what that means in practice.
The businesses holding value tend to have three things in common: predictable, recurring revenues; clear unit economics; and financial discipline. These are the factors buyers actually underwrite. They can be stress-tested, modelled across scenarios, and defended to an investment committee.
Where compression happens is different. Valuation driven more by growth expectations than by demonstrable performance is the first to be challenged when conditions tighten.
That distinction matters more now than it did when capital was abundant. In a looser environment, a credible growth story could carry a valuation on its own. That is no longer the case. The question investors are asking is not whether the business could be worth that – it is whether the valuation can be supported by what has actually happened and what comparable transactions have demonstrated.
There is a structural explanation for why private market valuations have tended toward optimism in the first place, and it largely comes down to frequency.
If valuations are set infrequently and tied to funding rounds, there is naturally more scope for them to drift. That is a feature of the structure, not a failure of intent. Without the continuous price signal that public markets provide, valuations can remain unchallenged for extended periods.
What has changed is that they are now being tested more frequently – against market comparables, against transaction evidence, and against real investor appetite. The gap between what something is theoretically worth and what someone will actually pay for it is closing. That process is more advanced in UK markets, where capital has been more constrained, which is part of why AIM pricing often looks more realistic earlier in the cycle.
The shift toward more grounded valuations is real, but it is not happening uniformly, and this matters for anyone making cross-market comparisons.
Some parts of the market – particularly sectors with strong thematic growth narratives – are still pricing long-term potential quite aggressively. Elsewhere, particularly in public markets, valuations are already heavily anchored to cash generation, near-term performance, and hard comparables.
The result is a bifurcation, where different parts of the market are operating under very different valuation disciplines. An investor moving between sectors, or between public and private, may encounter very different pricing logic depending on where they are looking. The question of whether a valuation is realistic increasingly requires knowing which part of the market you are in.
At its core, valuation is not about what something should be worth – it is about what someone is actually prepared to pay. And what is changing now is that private markets are being tested much more directly against that reality.
That is a useful frame for any company approaching a fundraise in the current environment. The question is not whether your model produces a defensible number. It is whether that number can survive contact with an investor who has access to real transaction data, public market benchmarks, and no shortage of alternatives.
Neil Blankstone is Senior Investment Manager at First Equity Limited, which has been active in London’s smaller company markets since 1987. He joined Richard Angus (Hardman & Co) and Doug Lawson (MarktoMarket) for the final instalment of the SaaSpocalypse series. You can watch all four parts here.
