Churn and growth drive the valuation

This post is fuelled by a couple of discussions about company’s valuation based on revenue multiples. I believe it often represents the thinking of the founders of how much their company is worth. Let me rephrase it

“Since company X reported a round at 20 million valuation and I just checked their financial statement and they are similar size I am also worth 20 million / I should expect a 15x multiple.”

Well.. NO! and here is why.

There are 2 metrics very underestimated in terms of their impact on business.


Churn is one of THE things that differentiates future winners from losers. It is a quick indicator on whether your product makes sense, brings value. It Is also a quick proof whether your acquisition strategy is right and your onboarding works. It is not easy not to say impossible to significantly reduce churn with easy fixes.

And what is crucial a 3% churn company is much much worse than a 1% churn company (not to mention negative churn. Let’s look at the maths:

Let’s tke a company that has 10K MRR. Let’s assume this company will not get any new clients. Total future revenue of the company will vary hugely depending on churn. This are the revenue streams you “buy” when investing.

250k vs. 1 million — sound like quite a difference from “only 3% difference in churn. Well to be precise a 3 ppts difference so a 75% difference in churn. So referring to the above a 3% churn company is 3 times less worth than a 1% one.


Growth solves all your problems. I would argue that growth generates problems, but growth is what makes a startup valuable and what can bring returns.

From my modest experience I assume that if a company grows at x% with new invest it will keep the % growth rate (optimistic assumption but it happens). So let’s have a look how much revenue will the company be doing in 18 months (so when the typical next fundraise will be).

Well, compound growth rates are so often underestimated!

So what?

I have been thinking on how to put in together and came up with first version of RCGM (Rokosz churn growth multiple) which takes both of above into account.

Starting point is a 80x MRR multiple for a 2x YoY company with 2% monthly net churn. Than depending on where the company is adjusted.

I believe this is a good tool to benchmark where the investments proposals are. Obviously stage/ team / market potential might play crucial role. and yes we’ve seen transactions on both 320 as well as 12x

Since this is my first take on that I am very open for discussion (yes with my team @ Inovo as well). Model is very simplified to make it illustrative

*I trust it works on series A/B stage not relevant for late stage when companies will be valued on EBITDA or seed (when you are in beautifull postition when you have no revenue — watch out once you get the revenue it will never be enough!