Valuing a SaaS Company

Part of our business model is evaluating businesses and their potential for future return. While Revtap’s financing is non-dilutive, meaning we don’t take a piece of equity and therefore don’t determine a valuation on a business in the same way a traditional Venture Capital firm does, its still an important metric for our risk management to determine a potential value of the businesses we finance.

Now, valuation is a highly subjective metric, and valuations on private companies are hard to come by since they’re, well, private; but we’ve recently conducted a deep analysis on valuation multiples paid for both M&A transactions and venture capital throughout the software industry, parsing publicly available data on SaaS deals from 2022 and 2023.  For our purposes, since Revtap provides capital in return for a share of a company’s revenues rather than equity (boom!), we’ve focused this research on a revenue based valuation model. We (and probably most SaaS founders out there) want to know ‘what is a SaaS business valued at based on their revenues alone’. The only way to know for sure is to parse the data of previous transactions and see what the market has been paying. Here’s what we found.

First, What is a SaaS Revenue Multiple?

Simply put, ARR (Annual Recurring Revenue) multiples can be determined by dividing a company’s Valuation by its ARR. So we looked at hundreds of data points to determine what valuations were being paid for a specific SaaS industry, et voilà – we can give a good approximation, based on acquisitions and venture investments through 2022 & 2023, what SaaS companies can expect as a revenue multiple.

What Other Metrics Matter?

EBITDA – Earnings before Interest, Taxes, Depreciation and Amortization is a metric that is often used to value companies. Essentially a profit multiple. For sake of this article, we’ve completely ignored this metric, but as every founder knows a good CEO should not.

Retention – Net Revenue Retention (NRR) is the cumulative total of retained and expanded revenue over a set period, less churn (revenue lost), typically one month or one year. This is an incredibly important metric for SaaS companies; this measurement helps businesses better understand the sustainability of their operations.

Net Revenue Retention rate (NRR) = monthly recurring revenue (MRR) at the start of the period, + new revenue, – churn – attrition / monthly MRR at the start of the period

Growth Rates – Revenue growth rates are pretty self explanatory; typically measured YoY, the revenue growth over the period.

Here are the Numbers

The top transactions over 2022 & 2023 were in Cybersecurity, HR, so we’re going to focus on these

 

Bonus – Average Growth Rates & Net Revenue Retention (NRR) Stats

Because we dove so deep into transactions over the 2022 & 2023 period, we were also able to come up with NRR and Growth metrics, which we’ll share here:

And there you have it. SaaS Valuation Multiples from actual transactions over the past 24 months, along with what the median and top quartile companies have seen with respect to growth.

About Revtap

Unique and innovative. Just like the companies we fund.

Revtap allows companies to raise capital – equity free – through revenue sharing.

We invest in revenue generating companies in vertical software markets. Like traditional venture capital, we look for sticky products with excellent traction and growth potential. Unlike venture capital, we provide capital in exchange for 1-2% share of top-line revenues, rather than equity. No dilution, no board seats, no loss of control.

Unlike venture debt there are no warrants, and companies never have to repay the financing. However we give the businesses we invest in the flexibility to end the arrangement anytime.

Its that simple.

Reach out to learn more and see if our model is right for your business.

To your continued success, from all of us at Revtap!

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