Private SaaS Multiples: Understanding Valuation for Private Software-as-a-Service Companies

Private SaaS Multiples When valuing private software-as-a-service (SaaS) companies, one key metric that investors and analysts often look at is the SaaS multiple. Typically based on a company’s annual recurring revenue (ARR), this metric can give insight into how a company’s valuation compares to its peers and the overall market.

So what exactly is a SaaS multiple, and how is it calculated? Essentially, it’s a ratio that compares a company’s ARR to its valuation or enterprise value (EV). For example, a SaaS multiple of 6 would mean that a company’s ARR is 6 times its EV. The higher the multiple, the more expensive the company is.

Compare public companies

While SaaS multiples are often used to compare public companies, they can also be applied to private companies. However, there are a few key differences to remember when looking at private SaaS multiples.

First, private SaaS companies are not publicly traded, meaning less information is available about them. This can make it more difficult to calculate their SaaS multiples accurately. Additionally, private companies may not have the same level of financial transparency as public companies, making it harder to get a clear picture of their financials.

Another critical difference is that private SaaS companies may not have the same revenue visibility as public companies. For example, a private company may have a long-term contract with a major customer that makes up a significant portion of its revenue. Still, that revenue may not recognize on the company’s financial statements until the contract fulfill. This can make it harder to accurately calculate the company’s ARR and, therefore, its SaaS multiple.

Despite these challenges, private SaaS multiples can still be a helpful metric for investors and analysts to consider when evaluating a company’s valuation. However, it’s essential to remember that it’s just one piece of the puzzle and should be considered in conjunction with other financial and qualitative metrics.

Some sources to consider when researching private SaaS multiples include:

Remember that the private SaaS multiple is not an absolute measure of a company’s value. Still, it can be a helpful tool for comparing valuations of private software-as-a-service companies.