When I worked in venture capital, I was lucky enough to have the opportunity to invest in some really great companies during their early rounds. Now some of those companies are going public, and I find myself spending some time thinking about when to sell my stock in these companies.
I don’t think anyone has truly figured out the formula to value these companies. There just aren’t enough examples of SaaS companies that have reached maturity and shown us what they really look like in the long term. Salesforce still grows at 23% annually and trades at over 100x EBITDA!
Nonetheless, I thought it’d be an honest exercise for me to write some thoughts down and then review them in a few years.
I think that growth should be the number one factor in considering SaaS valuations (when I say valuation, I mean how much is the company worth on a revenue/gross profit/EBITDA/FCF multiple basis). If a company can grow at 50% for 3 years, it’s topline will be nearly 3.4x higher! That’s powerful.
If you’re a real SaaS company, this means you have 80+% gross margins and should start seeing nearly 40 cents/dollar of new revenue start to fall down to operating cash flows. Assuming the company that grows at 50% annually was cash flow breakeven, that means your operating cash flow in three years is more than your current revenues.
No two companies are the same. The top factors that would effect valuation are how scalable growth is (sales/marketing channels and economics), how long growth can go for (market size, competition), churn (and how it contributes to growth), and margin profile (gross and net), barriers to entry (that will protect current revenues and make sure new competition doesn’t chip into existing growth prospects)…there are some other things pretty important too, like management’s incentive system.
I think what a lot of investors have figured out is that if a company keeps growing, you can pay through the nose (relative to what most companies trade at) and still make a nice IRR. I agree that growth is the most important aspect of valuation, and that most of the other factors are basically contributors to growth. Even in these heady times of crazy valuations, I’d say that a lot of the public companies are undervalued! The other main factor here is the margin profile. If you can’t ever be profitable, then forget it. And, in the case SaaS companies, it’s more like you have to be VERY profitable.
I don’t have time to look up various rules on making stock predictions for companies you own. So, I’ll leave you with this very basic spreadsheet (SaaS valuations thoughts) that should illustrate that growth is key in valuation and how I think various companies should be valued (although I guess the numbers in blue are very much up to interpretation in most companies). Enjoy.
I think the admin of this site is really working hard in support
of his web page, because here every stuff is quality based information.
Saved as a favorite, I love your blog!
Hello there! This is kind of off topic but I need some help from an established
blog. Is it difficult to set up your own blog?
I’m not very techincal but I can figure things out pretty
fast. I’m thinking about making my own but I’m not sure where
to start. Do you have any ideas or suggestions? Thanks
Thank you, I have recently been searching for
info about this subject for a long time and yours is the best I’ve
discovered so far. But, what concerning the bottom line?
Are you positive about the source?
Howdy! This is my first comment here so I just wanted to give a quick shout out and say I genuinely enjoy reading your articles.
Can you recommend any other blogs/websites/forums that cover the
same topics? Appreciate it!
hey there and thank you for your info – I have definitely picked up anything new from right here.
I did however expertise a few technical points using
this site, since I experienced to reload the site many times
previous to I could get it to load properly. I had been wondering if your hosting is OK?
Not that I’m complaining, but slow loading instances
times will very frequently affect your placement in google and could damage your quality score if advertising
and marketing with Adwords. Anyway I’m adding this
RSS to my e-mail and can look out for a lot more of your respective interesting content.
Ensure that you update this again very soon.
Awesome issues here. I am very satisfied to
see your article. Thanks a lot and I am looking ahead to touch you.
Will you kindly drop me a e-mail?
This paragraph presents clear idea in support of the new viewers of blogging, that actually how to
do running a blog.
I used to be able to find good information from your content.
online casino australia sign up bonus
australian casinos online gambling
usa casino checks accepted
Pretty component to content. I just stumbled
upon your site and in accession capital to say that I get actually enjoyed account
your weblog posts. Any way I’ll be subscribing to your feeds or even I achievement you get entry to persistently fast.
Hello! This is my first visit to your blog! We are a team of volunteers and starting a new project in a community in the same niche.
Your blog provided us valuable information to work on. You have done a
extraordinary job!
This is really interesting, You are a very skilled blogger.
I’ve joined your rss feed and look forward to seeking more of your wonderful post.
Also, I’ve shared your web site in my social networks!
Wow, this piece of writing is pleasant, my sister is analyzing
such things, so I am going to tell her.
Normally I do not learn article on blogs, but
I would like to say that this write-up very compelled
me to check out and do it! Your writing style has been amazed me.
Thank you, very nice post.
I don’t even know how I ended up here, but I thought this post was great.
I do not know who you are but definitely you’re going to a famous
blogger if you are not already 😉 Cheers!
Your method of describing the whole thing in this paragraph is really fastidious, all be able
to without difficulty be aware of it, Thanks a lot.
Hello this is kind of of off topic but I was wanting to know if blogs use WYSIWYG editors or if you have to manually code with
HTML. I’m starting a blog soon but have no coding
skills so I wanted to get guidance from someone with experience.
Any help would be enormously appreciated!
Heya i am for the first time here. I came across this board and I find It really useful &
it helped me out a lot. I hope to give something back and help others like you
aided me.
Thanks for sharing your thoughts about http://www.vingle.net. Regards
I all the time emailed this weblog post page to all my friends, for the reason that if like to read it after that my links will too.
Hello my family member! I want to say that this post is awesome, great written and come with approximately all vital infos.
I would like to see extra posts like this .
What’s up, every time i used to check web site posts
here in the early hours in the dawn, because i enjoy to learn more and more.
obviously like your web-site but you need to take
a look at the spelling on quite a few of your posts. Several of them are rife with spelling
issues and I in finding it very bothersome to inform the truth nevertheless I’ll surely come
back again.
Wonderful blog! I found it while browsing on Yahoo News.
Do you have any tips on how to get listed in Yahoo News?
I’ve been trying for a while but I never seem to get there!
Thank you
I got this website from my friend who informed me on the topic of
this web site and at the moment this time I am visiting this
website and reading very informative articles or reviews here.
What’s up Dear, are you in fact visiting this website regularly, if so
after that you will without doubt obtain pleasant
knowledge.
I enjoy what you guys are up too. This kind of clever work
and exposure! Keep up the wonderful works guys I’ve incorporated
you guys to my blogroll.
you’re truly a just right webmaster. The site loading velocity is amazing.
It kind of feels that you are doing any distinctive trick.
Also, The contents are masterwork. you’ve done a fantastic activity on this topic!
I visited multiple web sites except the audio quality for audio
songs present at this web site is truly wonderful.
Superb blog! Do you have any hints for aspiring writers?
I’m planning to start my own blog soon but I’m a little
lost on everything. Would you recommend starting with a free platform like WordPress or go for a paid option?
There are so many choices out there that I’m totally confused ..
Any recommendations? Bless you!
Hello, its nice paragraph regarding media print, we all know media is a impressive source of facts.
Hey! I could have sworn I’ve been to this website before
but after browsing through some of the post I realized it’s new to me.
Nonetheless, I’m definitely glad I found it and I’ll be bookmarking and checking back frequently!
I have to thank you for the efforts you’ve put in penning
this blog. I’m hoping to see the same high-grade blog posts from you later on as well.
In truth, your creative writing abilities has encouraged me
to get my own, personal blog now 😉
Your way of describing the whole thing in this
paragraph is really pleasant, every one can easily know it,
Thanks a lot.
Hi, i think that i saw you visited my web site thus i came to “return the
favorâ€.I am attempting to find things to improve my web site!I suppose
its ok to use some of your ideas!!
Piece of writing writing is also a fun, if
you be acquainted with afterward you can write if not
it is difficult to write.
Awesome post.
hello!,I really like your writing so so much! percentage we keep up a correspondence more
approximately your article on AOL? I need an expert in this space to solve my
problem. Maybe that is you! Looking ahead to peer you.
Pretty! This was an incredibly wonderful post. Thanks
for providing this info.
I just could not go away your website prior to suggesting that I extremely loved
the usual info a person provide on your guests?
Is going to be again incessantly in order to check out new posts
This post provides clear idea for the new visitors of blogging, that really how to do blogging.
It’s amazing in support of me to have a site, which is helpful for my know-how.
thanks admin
I’m not sure where you’re getting your information, but
great topic. I needs to spend some time learning more or understanding more.
Thanks for wonderful info I was looking for this info for my mission.
Hello, I enjoy reading all of your article. I wanted to write a little comment to support you.
That is very interesting, You are an excessively professional blogger.
I have joined your feed and look forward to seeking more of your great post.
Also, I have shared your website in my social networks
Fantastic items from you, man. I have take into accout your stuff previous to and you’re just too magnificent.
I really like what you’ve bought right here, certainly like what you’re stating and the way in which during which you are saying it.
You are making it entertaining and you continue to care for to stay it sensible.
I can’t wait to learn far more from you. This is really a wonderful
website.
Hello, Neat post. There is an issue along with your site in internet explorer, could check this?
IE still is the marketplace chief and a good portion of folks will pass over your magnificent writing because of this problem.
Thank you for the auspicious writeup. It actually was once a enjoyment account it.
Look complex to more delivered agreeable from you!
By the way, how can we communicate?
My family members every time say that I am killing my time here at net, but
I know I am getting familiarity all the time by reading thes nice
posts.