Revenue multiple for rough valuation

I’ve been getting some questions lately about valuation.

A rule of thumb used to be a 4-6x multiple on ARR for B2B SaaS.

Feels like this is way out of wack today. eg if a company is doing $1M ARR, then taking $1-2M on $4-6M doesn’t make sense. More like $10M pre money valuation at the low end.

I’m not even talking about SF valuations vs elsewhere, just thinking through what the rough guidelines are.

If anyone has pointers to Series A multiples that would be a helpful starting point.

The difference would mostly be based on the growth rate. But $1M ARR is over $10M pre-money in virtually every case. in my experience.


Softbank and Tiger have definitely changed the game. Here’s some data suggesting 12x is more appropriate these days

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What’s interesting for me in looking at a lot of the publicly available data is that the numbers used are for publicly traded companies, which have very different risks/growth/liquidity/etc. than a lot of emerging Series A companies. And it is great to see the benchmarks that a Series A investor like Redpoint uses:

The market dynamic of SPACs and capital concentration is amazing for the winner (or winners) in markets. The Initialized Capital team had published their ‘metrics’ for Series A in different biz models (D2C; Enterprise SaaS; Marketplaces).

In my view focusing on metrics like ARR is probably a better way to value “mature” businesses than startups/growth companies. For instance a few of the articles above were about valuing public companies, not sure that same approach makes sense for a startup.

I feel like startups represent an extended proof of concept phase where you’re “building the machine” and seeing if it’s going to work, and the numbers that you’d look at to tell whether the machine is going to work are different from those you’d look at to see if a “mature” business is healthy.

For instance, was investing in a startup I’d care a lot more about revenue growth rate (a company that’s gone from $2M to $5M to $10M in ARR over the past 3 years is probably worth a lot more than one that’s been flat at $10M for the past 3 years) and various company-specific metrics like client/user growth, etc. than I’d care about top-line revenue.

ARR (Annual Recurring Revenue)

Agreed, public companies are not a great comparison but they are often the easiest comparison because unless you have a large portfolio your dataset is too small or not concentrated with similar customers, markets, prices, stages, etc.

YMMV - Pitchbook, Crunchbase, Preqin, CB Insights, Hockeystick, and others Fundz have some data. But the data is often incomplete and not necessarily more reliable than wild guess or public comparables. It’s enough to get directionality but not causality.

For better metrics generally but not related to valuation see:

I’ve always thought that valuation = multiplier x ARR only made sense for larger companies, typically at exit, when ARR >10M.

For early stage companies I try to push the following formula

valuation = constant + multiplier x ARR

The constant is what the company is/was worth at the seed (pre-revenue) round, so something like 5M for many companies outside of SV.


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I think Danny is right here. It’s ARR and growth rate.

I know companies at $2M ARR who can’t raise and I’m talking with another who’s at $2.5M ARR who is complaining that they are only being offered at $20M (Their growth rate is 140% fyi).

If you are growing 2-3X per year, I even think 12X revenue is low.

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I agree with most of the things said above. One addition: Net Revenue Retention.

All of the really big companies have an NRR of +130%. You’re probably not going to see that at Series A but there should be hints of large NRR in the future.