Tech Companies Going Public Aren’t Getting More Employees, They’re Just Getting Bigger Valuations

Recently, public tech companies have gotten bigger in terms of valuation, but not so much in terms of staff size.

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That’s the broad conclusion from our latest Crunchbase News analysis of employee totals at venture-backed companies that went public in the past several months. The findings showed a dramatic change from a little over two years ago, when we last looked at the intersection of valuation and staff size, or valuation-per-employee.

Overall, we found that for newly public companies with multibillion-dollar market values, staff size ranged from a low of 171 (Desktop Metal) to a high of 5,465 (Airbnb).1 We also found companies with comparatively small sizes, such as GoodRx, could still command some of the highest valuations on the list.

To get an idea of how valuation correlates with staff size, we put together a dataset of select U.S venture-backed companies that went public in the past year, most in the past six months. We then looked at their market caps and applied simple division to figure out valuation-per-employee, as you can see below:

These are high numbers

We didn’t fit every venture-backed company that’s recently gone public via IPO or SPAC onto our list, focusing instead on the bigger names and on tech rather than biotech. Still, from this limited exercise, the takeaway is clear: Investors are willing to assign much higher valuations relative to staff size than just two years ago.

Whereas in late 2018, software companies with successful IPOs commonly were valued around $1 million to $4 million per employee, high-valuation tech companies today commonly fetch valuations equivalent to $10 million or more per employee. At the high end, prescription drug price comparison tool GoodRx has a valuation equivalent of around $50 million per employee.

The valuation-per-employee inflation is in line with a raft of metrics alerting us that tech stocks are hitting historical highs. Shares are up. Market caps are up. And valuations relative to earnings and revenues (or losses and revenues as is the case for most tech-focused new market entrants), are also way up there.

Is it all about growth?

Generally speaking, newly public tech companies get higher valuations relative to earnings than more established industries because investors see them as poised for growth. Venture-backed tech companies going public typically show at least double-digit revenue growth in the couple years preceding their offerings, with expectations of continued or accelerated momentum.

Because they’re growing, newly public tech players are typically adding staff at a brisk pace, so one would expect valuation per employee to go down. It’s noteworthy, however, that this year’s survey didn’t show much growth in overall employee counts at companies going public. Quite a few highly valued newcomers have a few hundred employees, and only one — Airbnb — had a full-time staff of more than 4,000 people.

Some can fit on a bus; others need an arena

As we noted last time, it’s not unheard of for startups with a staff that could fit into a single bus to be valued in the billions. Take WhatsApp, the poster child for high value-per-worker startups. The messaging company employed just 55 people when Facebook bought it for $19 billion in 2014. That works out to nearly $350 million in valuation per employee.

High valuations per employee are also particularly prevalent in biotech, which we did not survey here, as most companies in the space start out with a small research team and don’t significantly scale staff before reaching the advanced clinical trial stage.

The current tech startup scene also has its share of small teams boosting their startups to unicorn status and beyond. Calendly, the calendar app startup recently valued around $3 billion, lists a staff size of 213. One of the latest to cross the billion-dollar valuation threshold, group discussion platform Clubhouse, got there on a staff of just around 10, according to Rahul Vohra, an angel investor in the company.

Vohra said that although he would agree that valuation per employee has skyrocketed and public market caps are high, he doesn’t think that points to a bubble, given that startups and unicorns have also become better at scaling, noting that “companies are growing faster than ever before to become bigger than ever before.”

Given how tough it is to predict and time the ascent and descent of tech valuations, we won’t speculate here on whether current levels represent a sell signal. However, it is worth considering that companies going public of late are more valuable, but not necessarily any bigger than new entrants a couple years ago. That means investors are expecting existing staff to produce a lot more future value for their employers than they did just a few years ago.

Illustration: Dom Guzman


  1. Staff totals are disclosed in public securities filings and cover full-time positions. Most totals were last updated for Sept. 30, 2020, and may have changed since then.

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