What's Your SaaS Company Worth?

2024 Update

This white paper is written for entrepreneurs, angel investors, and the management teams of SaaS businesses. The intent of the paper is to describe the approach used by most professional investors and strategic buyers to value a SaaS company.

How do you calculate the value of a SaaS company?

The market has adopted a shorthand formula for valuing growing SaaS companies, using a multiple of annualized recurring revenue (ARR). Determining the suitable valuation multiple, therefore, is the crucial exercise. The right multiple depends not only on the company’s characteristics but on broader market conditions at a point in time. There is no one-size-fits-all multiple – but it is possible to make an informed, data-driven estimate.

What is the formula for SaaS valuation?

Three primary factors drive SaaS valuation multiples: the capital market appetites for owning SaaS businesses, growth, and revenue quality. Our methodology uses the following inputs to account for these three factors:

1. The current level of the SaaS Capital Index^TM (SCI).
2. The company’s current ARR Growth Rate.
3. The company’s Net Revenue Retention (NRR).

The framework described in this paper is designed to work with the current company multiples found in the SaaS Capital Index, which is updated monthly.

Valuing companies will always be more art than science, but we’re confident that this framework provides founders and shareholders of private B2B SaaS companies with a data-driven foundation to any valuation estimate.

SaaS Capital is a provider of debt financing for private B2B SaaS companies. Since 2007, we have lent to over 100 such firms and observed over 50 of those companies undergo arm’s length, private-market, cash valuation events (about half M&As, half equity raises).