The 100x ARR Multiple

The 100x ARR Multiple


No alt text provided for this image

The 100x ARR multiple might be the fundraising meme of 2021. Before, most investors used forward ARR multiples to value companies, but recently, the 100x multiple seems to be a benchmark for SaaS companies raising rounds.

Where did this figure originate? How does it compare to the public markets' valuation of companies?

No alt text provided for this image


Let’s look at the data. Here are the estimated ARR multiples for public SaaS companies. I estimated ARR as the annualized revenue of the most recent fiscal quarter.

The distribution of enterprise value to ARR multiples parallels those of EV/NTM revenue in a few ways. First, the range is similar: 2 to about 100. Second, the correlation between the two metrics and revenue growth is identical at about 36%. Third, there’s a power law shape to both data sets.

I don’t know if the market has decided to afford highly sought after ARR multiples by looking at this data. But the data suggests a company commanding 100x ARR is supported by the market, if the startup is in the top 5% of businesses.

The quartile distribution of multiples tells a different story. The 75th percentile multiple is 26x ARR and the median is 17x.

Of course, these multiples are for public companies; anyone can buy shares. The private market has a pattern of paying premiums to public figures because?access is the scarcest commodity in startupland. The question before most investors today is: how much of a premium to pay?

It depends?and the premium implies the number of years of perfect execution the investor credits the startup team. The greater the premium, the greater the future forward expectation of performance.

The market is observing investments fetching 200, 300, 400x ARR, sometimes more, so the premium can be substantial.

Is it warranted? We’ll know in the fullness of time. Not every company will be as successful as those who top the list in the charts above and achieve billions in revenue growing 70% or more annually.

I wonder if it’s the right metric long term. Unlike the forward ARR valuation method, this technique doesn’t normalize for?forward growth?which means there’s information lost in the figure.

Regardless, the 100x ARR multiple seems to be a benchmark in the industry today. It has some foundation in the public markets, but assumes quite a bit of forward execution.

Panos Papadopoulos

Partner at Marathon Venture Capital

3 年

Just kudos for TradingView screenshot, a company that SV missed entirely :)

回复
Peter Abraham

Co-founder, Author, Practitioner- Business Agility, Digital Marketing & Digital Transformation, AI adventurer, Strategist, M&A PE advisor

3 年

If they're in the top 5% and achieve 100x ... What's the likely payback term on investment? Is it even possible given that in the top 5% that's going to be some $ sum. Just curious. Thanks for sharing.

Hayk C.

Founder @Agentgrow | 3x Head of Sales

3 年

Thanks for sharing Tomasz Tunguz

回复
Darrell Sorenson

Managing Director, Tech Banking & Venture Debt at Silicon Valley Bank

3 年

Mind blowing valuations. I used to think that public companies commanded premiums because of greater access to capital and staying power (scale). Private companies demanding premiums based on scarcity of access to good private companies flips that on its head - lots of VC funding is available right now.

Steen W. Sorensen

Fractional CFO @ VarsoGroup

3 年

Wow, what an observation: scarcity justifies a private to public premium on the very best performing SaaS startups of an eyepopping 100x ARR or more.... SaaS founders take notice

要查看或添加评论,请登录

Tomasz Tunguz的更多文章

  • The Implications of the Wiz/Google Deal

    The Implications of the Wiz/Google Deal

    Is tech M&A back? Google announced its intention to buy Wiz for $32b today. If approved by regulators, it would be the…

    6 条评论
  • Halving R&D with AI & the Impact to Valuation

    Halving R&D with AI & the Impact to Valuation

    Engineering teams within AI application startups are much smaller than a classic software company - maybe half the size…

    8 条评论
  • The Mirage in the Software Clouds

    The Mirage in the Software Clouds

    Public SaaS companies’ growth rates have halved since 2023, as David Spitz pointed, from 36% to 17%. Why? There are…

    12 条评论
  • This Analysis Cost 27 Cents

    This Analysis Cost 27 Cents

    Monday’s analysis cost about 27 cents to produce. This little screenshot is of Claude Code, the product I use now to…

    9 条评论
  • Positioning Startups in the Age of AI

    Positioning Startups in the Age of AI

    How do you position and scale an AI company in a rapidly evolving market? Join us for an in-person Office Hours session…

    6 条评论
  • How Much Is A Venture Firm Worth?

    How Much Is A Venture Firm Worth?

    A small spin-out from a publicly traded behemoth launched with the ambitious vision of transforming their entire…

    5 条评论
  • Why War & Peace Is Killing Your Data Budget

    Why War & Peace Is Killing Your Data Budget

    Imagine if every time you edited a document, the word processor forced you to retype everything that had been written…

    3 条评论
  • A Founder's Guide: Essential Management Advice for Startups

    A Founder's Guide: Essential Management Advice for Startups

    As startups scale, effective management becomes the difference between chaotic growth and sustainable success. After…

    10 条评论
  • Lopsided AI Revenues

    Lopsided AI Revenues

    Which is the best business in AI at the moment? I analyzed Q4 revenue data from publicly traded companies across…

    8 条评论
  • Four Marketing Principles That Redefine Markets from Klaviyo's Former CMO

    Four Marketing Principles That Redefine Markets from Klaviyo's Former CMO

    During a recent Theory Office Hours with Kady Srinivasan, former CMO at Lightspeed Commerce, Dropbox, and Klaviyo, we…

    5 条评论

社区洞察

其他会员也浏览了