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.
For the reason that the admin of this web page is working, no hesitation very quickly it will be well-known, due to its quality contents.
Good post. I learn something new and challenging on blogs I stumbleupon everyday.
It’s always interesting to read through content from other authors and practice a little
something from other sites.
I think this is one of the most significant information for me.
And i am satisfied reading your article. But want to remark on some normal issues, The web site
style is perfect, the articles is actually excellent : D.
Good activity, cheers
You’ve made some really good points there. I looked on the web for more information about the
issue and found most individuals will go along with your views on this web site.
Nice respond in return of this difficulty with genuine arguments and describing everything concerning that.
Hello, I enjoy reading through your post. I wanted to write a little comment
to support you.
WOW just what I was searching for. Came here by searching for https://git.sicom.gov.co/grayshare64
You really make it seem so easy with your presentation but
I to find this matter to be actually something that I believe I might never
understand. It sort of feels too complicated and very broad
for me. I’m taking a look ahead for your subsequent put up, I’ll attempt to get the hold of it!
Actually when someone doesn’t know then its up to other viewers that
they will assist, so here it occurs.
Wow, that’s what I was seeking for, what a information! existing here at this weblog,
thanks admin of this web page.
What i do not realize is in truth how you’re now not actually a lot more smartly-appreciated
than you may be right now. You’re so intelligent. You realize therefore considerably in the case of this matter,
produced me individually believe it from so many various
angles. Its like women and men are not fascinated unless it’s one
thing to do with Lady gaga! Your personal stuffs
outstanding. At all times deal with it up!
It’s remarkable to visit this website and reading the views of all friends on the topic of
this piece of writing, while I am also eager of getting experience.
I am genuinely glad to read this weblog posts which contains tons of helpful facts, thanks for providing these information.
Heya i am for the first time here. I found this board and I in finding It really helpful
& it helped me out a lot. I’m hoping to offer one thing again and help others such as you helped me.
It’s a pity you don’t have a donate button! I’d without
a doubt donate to this superb blog! I guess for now i’ll settle for book-marking and adding
your RSS feed to my Google account. I look forward to brand new updates
and will share this website with my Facebook group.
Chat soon!
Write more, thats all I have to say. Literally, it seems as
though you relied on the video to make your point.
You obviously know what youre talking about, why throw away
your intelligence on just posting videos to your site when you could be giving us something informative to read?
My brother recommended I might like this blog.
He used to be entirely right. This submit actually made my day.
You can not believe just how much time I had spent for this info!
Thank you!
I just like the helpful information you supply
in your articles. I’ll bookmark your weblog and check again right here regularly.
I am moderately sure I’ll learn many new stuff right right here!
Good luck for the next!
Hey there! This is kind of off topic but I need some guidance from an established
blog. Is it hard to set up your own blog? I’m not very techincal but I can figure things out
pretty quick. I’m thinking about making my own but I’m not sure where to begin. Do you have any ideas or suggestions?
Many thanks
I’m gone to say to my little brother, that he should also go to see this website on regular basis to get updated from most recent reports.
Nice post. I learn something totally new and challenging on websites I
stumbleupon everyday. It’s always useful to read through content from
other writers and use a little something from other websites.
My brother suggested I might like this website.
He was totally right. This submit actually made my day. You
cann’t imagine simply how a lot time I had spent for this information! Thank you!
Hi would you mind letting me know which web
host you’re utilizing? I’ve loaded your blog in 3 completely different internet browsers
and I must say this blog loads a lot faster then most.
Can you recommend a good internet hosting provider at a reasonable price?
Many thanks, I appreciate it!
my web page – poker online depo pulsa
Do you have a spam issue on this blog; I also am a blogger, and I was
wondering your situation; many of us have created some nice practices
and we are looking to trade strategies with others, be sure to shoot
me an e-mail if interested.
This is really interesting, You’re an excessively professional blogger.
I have joined your rss feed and stay up for
looking for more of your excellent post. Additionally, I’ve shared your web site in my social networks
This website was… how do I say it? Relevant!! Finally I have found something which helped me.
Appreciate it!
Have you ever thought about publishing an ebook or guest authoring on other sites?
I have a blog centered on the same ideas you discuss and would love to
have you share some stories/information. I know
my viewers would enjoy your work. If you are even remotely interested, feel free to send me an e mail.
It’s awesome to visit this site and reading the views of all friends about this article,
while I am also keen of getting knowledge.
I am actually grateful to the holder of this web page who
has shared this impressive post at here.
Superb blog! Do you have any tips for aspiring writers? I’m planning to
start my own blog soon but I’m a little lost on everything.
Would you advise starting with a free platform like WordPress or go for a paid option? There are so many options out there that
I’m completely confused .. Any recommendations? Thanks!
Thank you for the good writeup. It in fact was
a amusement account it. Look advanced to more added
agreeable from you! However, how could we communicate?
Hi to every , as I am really eager of reading this web
site’s post to be updated on a regular basis. It contains good information.
Thanks very interesting blog!
Hurrah! After all I got a website from where I can really take valuable information concerning my study and
knowledge.
Unquestionably believe that that you stated.
Your favorite justification appeared to be on the
net the simplest thing to have in mind of. I say to you,
I certainly get irked while other people consider concerns that
they just do not recognise about. You managed to hit the nail upon the top and also outlined out the whole thing without having side-effects , other people could take a signal.
Will likely be again to get more. Thanks
Hey there this is kind of of off topic but I was
wondering if blogs use WYSIWYG editors or if you have to manually code with HTML.
I’m starting a blog soon but have no coding know-how so I wanted
to get advice from someone with experience. Any help would be greatly appreciated!
Have you ever thought about writing an e-book or guest authoring on other websites?
I have a blog based upon on the same topics you discuss and would really like to have you share some stories/information. I know my audience would value your work.
If you’re even remotely interested, feel free to send me an e-mail.
What’s Going down i am new to this, I stumbled upon this I have discovered It absolutely helpful and
it has aided me out loads. I hope to contribute & assist other
users like its aided me. Great job.
What’s Taking place i am new to this, I stumbled upon this I have found It absolutely helpful and it has aided me out loads.
I’m hoping to contribute & help different customers like its helped me.
Great job.
I don’t even know the way I stopped up right here, but I assumed this submit was great.
I don’t understand who you might be but certainly you’re going to a famous blogger
in the event you are not already. Cheers!
Just wish to say your article is as astounding.
The clarity in your post is just great and
i could think you are a professional on this subject.
Well together with your permission allow me to grasp your RSS
feed to stay updated with coming near near post. Thanks one million and please keep up the gratifying work.
If you are going for best contents like I do, only pay a
quick visit this site everyday because it presents quality contents, thanks
Hi there! This post couldn’t be written any better!
Reading this post reminds me of my good old room mate!
He always kept chatting about this. I will forward this page to him.
Pretty sure he will have a good read. Thank you for sharing!
I am truly glad to read this web site posts
which carries plenty of helpful facts, thanks for providing such statistics.
Wow, this paragraph is nice, my younger sister is analyzing such things, so I
am going to tell her.
I would like to thank you for the efforts you
have put in penning this site. I’m hoping to see
the same high-grade blog posts by you later on as well. In truth, your creative writing abilities has encouraged me to get my own, personal site now 😉
Fantastic blog! Do you have any helpful hints for aspiring writers?
I’m planning to start my own blog soon but I’m a little lost on everything.
Would you propose starting with a free platform like WordPress or go
for a paid option? There are so many options out there that I’m totally overwhelmed ..
Any tips? Kudos!
Good post. I learn something new and challenging on sites I stumbleupon everyday.
It’s always helpful to read articles from other authors and use something from other
sites.
I am genuinely thankful to the owner of this
website who has shared this great article at
here.
My spouse and I stumbled over here from a different web page
and thought I should check things out. I like what I see
so i am just following you. Look forward to finding out about your web
page again.