Actual valuation data points for private companies are scarce, and even guidelines for deriving valuation multiples are inconsistent and misinformed. So, while we work on a lengthy and detailed white paper on SaaS valuations to be published this fall, we thought we would go ahead and share some of the high-level data. This data is from nine of our companies that priced their equity in the last 24 months through a sale of the business or a substantial equity raise. All of these companies were SaaS, had revenue between $4 million and $15 million, and were growing between 10% and 100%.
For SaaS businesses growing at 40% to 60% year-over-year, the pricing range was 3.5 to 4.5 times current run-rate revenue. They all had normal gross margins (around 75% including support costs), normal net churn (90% to 105%), and a relatively good-sized addressable market. Stronger or weaker margins, revenue mix, or churn would obviously move the multiple significantly, particularly to the downside.
Slower-growing firms were worth 2 to 3 times current run-rate revenue. These companies were less attractive to growth equity or venture capital, so competition for the deal was lower as were their expected future cash-flows. Firms growing below 20% had difficulty selling stock at any price. Exits for these businesses came through re-caps or through financings associated with making an acquisition.
Not surprisingly, firms with 100% growth and over $10 million in revenue achieved higher multiples of 7.0 to 8.0 times revenue. No companies in our data set have achieved higher than an 8.0 times revenue multiple.
We hope this data is helpful. In the end, the value of your business is set by the “market,” and optimizing that value requires a number of buyers engaged in a competitive process. This report is simply meant to provide a guidepost for what others have recently achieved.
Please keep an eye out for our more extensive research on private SaaS company valuations early this fall. In that paper we will articulate the spread between public and private SaaS businesses in order to provide valuation guidance independent of stock market volatility. Download the full white paper here.
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