How much is your SaaS company worth?
Valuation in the private markets is certainly much more of an art than a science, and particularly for companies that are growing extremely fast. But what would a SaaS company be worth based on the same multiples that public companies trade on today? EV (enterprise value) / revenue is a primary valuation metric for many high-growth software businesses, but in the private markets, many companies focus on ARR (annual recurring revenue) given it’s a leading indicator of revenue. Public companies don’t usually report ARR, but many sell-side analysts are starting to look at EV / ARR multiples as a valuation metric and derive it as quarterly subscription revenue x 4. I found these ARR figures for almost 20 high-growth public SaaS companies and looked at their current and projected revenue and ARR based on sell-side analyst estimates. It produced a reasonable comparable set of revenue, ARR, and growth metrics (both historical and projections) that can be used against private companies. It not only includes revenue and ARR multiples but also growth-adjusted multiples based on estimated revenue and ARR, which shows what investors are willing to pay for a unit of growth.
Take a look at the below chart — you can see from this group the median multiple for EV / 2017 Ending ARR (a proxy for current ARR) is ~10x and EV / 2018 revenue (a proxy for next-twelve months since we’re in February) is 8x.
2017 Ending ARR and CY 2018E Revenue Multiples
So what is an illustrative valuation for a fictional SaaS company based on these multiples? Note this output implies a pre-money since it’s a proxy for enterprise value. You can click on this link, download the spreadsheet and enter your company’s metrics to see what valuation it informs, but below is a fictional company that has the following revenue and ARR figures;
- 2017A Revenue / ARR: $10M / $12.5M
- 2018E Revenue / ARR: $17.5M / $21.0M
- 2019E Revenue / ARR: $27.5M / $31.6M
Here are the valuation ranges for this hypothetical SaaS company based on high-growth public SaaS multiples:
There is a massive delta based on the various multiples — a high of $360M and low of $102M. Why is that? The higher numbers come from the growth-adjusted multiples and because this fictional SaaS company is growing much faster than the public comps, the implied valuation is skewed higher. Moreover, public companies have longer operating histories and a tendency to outperform the growth numbers they guide to the street, whereas it’s at times harder to predict precise growth targets for ultra-fast-growing private companies. To find out an implied valuation for a company, click on the link here, download the spreadsheet and enter the appropriate metrics [enter metrics in yellow shaded cells]. To the right in the link, you can see all the public company stats and multiples. There’s also a wide disparity in the public comps — Atlassian and Shopify trade at roughly 15x ARR and Twilio and Box are at ~5–6x ARR.
Multiples are only one factor in determining the appropriate valuation of a private SaaS company; there are many others like the perceived team, market size, profitability, efficiency, competition, product, etc. But based solely on revenue and ARR estimates this is a fair proxy of valuation using high-growth public SaaS medians as a reference point (and priced as of 1-Feb-2018!).
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