How much is my SaaS Startup worth?

It is time for you to raise money for your new tech venture, and a daunting task is ahead of you. How much is my company worth? Founders, advisors, and angel investors constantly debate how to value a SaaS business at the early stages. At the same time, Venture Capital firms employ different methodologies that have been successful for them over the years. So do you want to get an estimated range for the value of your SaaS company? Read this article and use the free online calculator linked below.

In general, to value a technology business, the first question is whether the company is generating revenues or not.?

Valuation of Pre-revenue SaaS Companies:

For pre-revenue technology businesses, most investors use some form of a scorecard that assigns relative values to the team, the IP, the size of the addressable market, the go-to-market strategy, and the unit economics.?

Generally accepted methods include:

• The?Dave Berkus?method.
• The Scorecard method from the?Angel Capital Association.

Over the past 15 years, I have been using and refining a scorecard that combines the traditional scorecard and an assessment of relative competitive advantage, observability, and other key performance indicators for technology companies at the?pre-chasm stage. I will publish a link to this scorecard in the future.

Valuation of Post-revenue SaaS Companies:

When assigning valuations to post-revenue companies, the debate centers around whether to look at a multiple of?EBITDA?or?Revenue.?Most methods add adjustments based on the?Annual Growth Rate, Net Revenue Retention, Gross Margin, and?Annual Contract Value?compared to the?Average Customer Acquisition Cost, including deployment service expenses.

Most methodologies include a variation of the Rule of 40, a score that combines growth rate and profit margin. So if a business is not growing fast but is profitable, it is as good as a business growing super fast but still unprofitable.

An Online Calculator for finding the valuation of B2B SaaS Companies

If you are curious about the valuation range for a SaaS Company with a B2B monetization model, Connect Sparks published an online calculator:

• FREE ONLINE CALCULATOR - VALUATION OF SAAS B2B COMPANY.

The SaaS Company valuation calculator is based on generally accepted methodologies published by?Bessemer Venture Partners,?SaaS Capital,?David Cummings, and?Luis J. Salazar.

Given the volatility of the public markets in 2022 and the correction in valuations, the Salazar method modifies the David Cummings method by adding a correction factor based on the 100-day moving average of a proprietary market sentiment index.

The calculator is valid for SaaS companies with a Business to Business –B2B monetization model, generating revenues between $1M and $50M per year and where the Customer Acquisition Cost is Lower than the Average Annual Contract Value.

How the different calculations work:

• Salazar - 2022 (Cummings modified): Takes into account the SaaS Valuation Multiple, which is a valuation multiple for the 50 largest Public B2B SaaS Companies (excluding Telecom, B2C, Recruiting, and VoIP), Annual Growth Rate, Net Retention Rate, Gross Margin, Free Cash Flow as a percentage of Revenues –Profit Margin, and a proprietary calculation of the current public markets sentiment index.
• David Cummings 2022: Takes into account Annual Recurring Revenue, SCI, Annual Growth Rate, and the free cash flow as a percentage of revenue — profit margin
• SaaS Capital 2022:Takes into account the SaaS Capital Index (SCI), a valuation multiple for Business to Business Software as a Service Companies, Annual Growth Rate, and Net Retention Rate for companies with revenues between $2M and $100M per year.
• SaaS Capital 2020: Takes into account Annual Recurrent Revenue - ARR times the SCI if the payback period per contract is less than 12 months and the Net Retention Rate is above 94%