A VC narrative that software-enabled companies like Uber should be valued at 10x+ revenue is falling apart but is still valid for startups with margins of 75%+
Dan Primack wrote in his friday newsletter: … While all of this is true, I think it is a lot simpler than that.
Context & Ripple Effects
For years the pitch was that 'software-enabled' companies deserved software multiples — 10x-plus revenue — even when their actual margins looked nothing like software's. That framing took hits before this post: critics had already flagged how vague, unconventional, and non-GAAP financial terms inflate startup valuations, and an analysis of 105 "Uber for X" companies found just four reached unicorn status out of $7.4B invested. Fred Wilson's argument draws the line cleanly: the 10x template survives only where gross margins run 75% or higher.
The timing matters because it lands amid a broader reset — early-stage valuations had already been coming back down from their unsustainable post-Facebook-IPO peak, and Uber itself was mid-identity-crisis, its board having swapped Kalanick's world-changing ambition for stability. Dan Primack, whose Term Sheet newsletter framed the debate Wilson is simplifying, was also on his way out of Fortune to join Jim VandeHei and Mike Allen's startup.
First-order effects
- Founders of low-margin, services-heavy startups lose the valuation template they were pitching against: if the 10x narrative is dead below 75% margins, their next round gets priced on real unit economics instead of category labels.
- Investors holding positions in companies marked at software multiples despite thin margins face immediate markdown pressure — Uber is the named case, and its board's pivot from growth mythology to operational discipline already signaled the market was repricing the story.
Second-order effects
- Capital rotates toward genuinely high-margin software, concentrating competition among funds for the few assets where the premium-multiple logic still holds and pushing low-margin companies toward profitability-first narratives or cheaper debt and structured deals.
- The scrutiny revives pressure on disclosure: metrics that blur product revenue from service delivery become harder to sell to later-stage investors who have watched the multiple compress.
Third-order effects
- If the pattern holds, private-market valuation structurally re-anchors from headline revenue to margin quality — a bifurcation that shows up downstream as the 'undercorn' phenomenon, where startups once valued at $1B or more fall below the threshold once their economics are tested.
- Category-based investing ('Uber for X') gives way to business-model diligence as the primary screen, changing which founders get funded and forcing marketplaces and hardware-adjacent plays to prove durable gross margin before earning software multiples.
The trend: Private-market valuation is decoupling from headline revenue growth and re-anchoring to gross-margin quality, with each failed high-multiple cohort narrowing the set of business models that command software multiples.