SaaS Capital Blog

2024 Valuation Model for SaaS Companies


Validating Our SaaS Valuation Model: Results from 2024 Market Data

SaaS Capital's valuation model is based on 60 equity transactions from over 11 years of data. Testing the valuation model on 27 anonymized deals from 2024 shows most fell within +/- 1.25x of the predicted ARR multiple.

Exploring the Cost of Capital for SaaS Companies - Part IV: Practical Estimates and Actions for the SaaS Cost of Equity

If there’s one thing to take away from this series, it’s this: Use some reasonable method to estimate the “price tag” of the financing dollars you take; “buy” expensive equity dollars for high risk bets when you must; and shop for cheaper debt dollars for predictable performance when you can. Set against that price tag, though, is the suitability in terms of quantum and flexibility; equity is king in this regard, but isn’t always available (and is always more expensive).

Comparing Revenue Growth Trends in the Public and Private SaaS Sectors

Median revenue growth rates have been decelerating steadily for public SaaS companies over much of the past decade. SaaS Capital recently completed our annual survey of private, B2B SaaS companies. With the most recent data in hand, we thought it timely to look at revenue growth rates for private SaaS companies and examine whether any of the above trends identified in public companies are also present in the private sphere.

2024 Benchmarking Metrics for Bootstrapped SaaS Companies

SaaS Capital works with both VC-backed and bootstrapped SaaS companies and has seen the advantages of both approaches. However, one situation that is especially interesting is bootstrapped SaaS companies with $3M to $20M in Annualized Run Rate Revenue (ARR). Growing from a pre-revenue startup to $3M (scale-up phase) marks a significant shift and bootstrapping from $3M to $20M creates enormous value for owners. To help support bootstrappers during their scale-up, we wanted to focus on 2024 benchmarking metrics for scale-up stage bootstrapped SaaS companies.

2024 Private SaaS Company Valuations

Valuing private SaaS companies can be a fraught and confounding process in which two groups can look at the same numbers and arrive at widely different results. As our long-time readers know, we have sought to provide an objective, data-driven reference point to help overcome the challenges presented by valuing private SaaS companies. Using data from SaaS Capital’s recently completed 13th annual SaaS benchmarking survey with the model from the white paper and the current SCI of 6.8, yields a predicted private SaaS company valuation multiple of 4.1x.

The Rule of 40 is Dead... Long Live the Rule!

The Rule of 40, which suggests that a SaaS company's growth rate plus profitability percentage should equal at least 40, has been a benchmark for assessing the health of SaaS companies. However, this rule has come under scrutiny for being overly simplistic and not accurately reflecting the nuances of company performance in different contexts. This article further elaborates on the shortcomings of the Rule of 40, suggesting that it doesn't account for the vast differences between companies that might achieve the same "score" through vastly different means.

Why Long-Term SaaS Revenue Growth Rates are Slowing; and What it Means for Your Private B2B SaaS Company

Median revenue growth rates of publicly traded Software-as-a-Service (SaaS) companies in the SaaS Capital Index™ (SCI) are decelerating, and have been for much of the past decade as these companies grew bigger. The more recent development is that growth rates are now decelerating for all company sizes, including smaller public companies, which historically had the highest growth rates in the Index.

AI Risks to B2B SaaS Companies: A Framework for Estimating Risk

Artificial Intelligence will affect B2B SaaS very unevenly. Most companies will be affected only marginally, as AI becomes another tool in the toolbelt for technologists to deliver business value. However, there are some parts of the B2B SaaS ecosystem that will be utterly hollowed out by AI, as entire departments or functions disappear. We suggest here some mental models to use to help you estimate the risks to your SaaS business from the rise of AI.

Private B2B SaaS Company Growth and Profitability Update: Q3 2023

In November 2023, SaaS Capital launched a short survey to compare intra-year data against our long-running annual B2B private SaaS company metrics survey. We focused on just two areas: growth rates and profitability. Key takeaways include: growth rates have slowed considerably through 2023, companies have responded by cutting costs, and the Rule of 40 number has increased for most companies through 2023.

Exploring the Cost of Capital for SaaS Companies - Part III: Cost of Equity Simplified?

In Parts I and II, we looked at public company data and private company valuation models (backed by data) in order to come up with some empirical guesses for the cost of equity capital for SaaS companies. In this part, we step back from the data for a moment in order to examine the theory. The result may surprise you.