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Does anyone have an idea of what a revenue multiple for a tech startup with a transactional business model would be?

I know it would be highly variable, but any resources, thoughts or known multiples would be useful. Thanks!

Jim

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Found this from 2007 suggesting 2x sounds about right. rulesofthumbs.com/2007/11/03/main-page – jim_shook Aug 17 '10 at 20:20

4 Answers

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What do you mean by "revenue multiple"?

If you're thinking about estimating the fair market value of the startup based on its gross revenue (a.k.a. total sales + capital gains), then you're going wrong. The company's value will be determined by many things, of which revenue is less important -- earnings (a.k.a profit), unique technology advantages, and strategic fit with the buyer are more important.

Take a look at the following link if you want a superquick primer on valuation based on earnings or see Wikipedia's longer article on it.

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Hey, I used to work in corp banking so I have a pretty good grasp on DCF and the ideas around earnings multiples. I was under the impression that because few startups are earnings positive, they were bought and sold on revenues a lot of the time (and even other things if there is no revenue yet). And definitely true re: tech advantages and an M&A synergy premium for that market value, just wondering if anyone knew of a ballpark number for rev multiple. – jim_shook Aug 17 '10 at 21:26
Sorry that I didn't level-set correctly. :-) I still don't think that revenue is a meaningful yardstick for valuation, but perhaps someone else will contribute an answer that proves it so. For VC investment it often comes down to competitive advantage, size of the potential opportunity, and gut feeling. There are metrics loosely related to revenue that are interesting and feed into the decision, fx Customer Lifetime Value. IMHO revenue itself is not that interesting, other than it's a 'signal' for both customer need and market traction. – Jesper Mortensen♦ Aug 17 '10 at 22:07
Interesting, that makes sense. And I bet bidding wars between VCs can play a big factor too. Sounds like that happened with Foursquare. Thanks for the thoughts. – jim_shook Aug 18 '10 at 3:11
up vote 1 down vote
  1. DropBox: 40x (>$100M rev at $4B valuation)
  2. Facebook: 30x ($3.3B run rate on a $100B valuation)
  3. SurveyMonkey: ~20x ($50M rev on $1B valuation) Dec 2011
  4. Zynga ~7.4x ($1.2B run rate on $8.9B IPO valuation. Dec 2011)
  5. Twitter: 50x ($140M rev at a $7B valuation)
  6. AirBnB: 50x ($20M rev at a $1B valuation)

From:

http://www.quora.com/What-are-some-of-the-most-mind-blowing-revenue-multiples-in-technology-startups

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Interesting, but not sure it's worth focusing on these outliers, gives the rest of us unrealistic expectations – Ryan Dec 17 '11 at 11:09
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First, congratulations if you are a tech startup with revenue -- you are already ahead of the game!

I agree with Jesper that the valuation will depend a lot on the type of business, the profitability, the growth potential of the business, and any perceived "premiums." Also, is this a valuation for seeking investment, or for exiting?

In general, I would say <1 - 4x. For software and Saas businesses with growth and perceived premiums, maybe 10x EBIT, which might be about 2-4x.

There are plenty of blogs and articles on this topic -- just Google "valuation for XXXX business". Also, you can read some SEC filings on companies in your industry that are involved in acquisitions.

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Trying to get an idea of valuation for a company seeking investment, not for exiting. If not sold to a strategic buyer (ie IPO or to another VC/angel), is there a difference in valuations for investments vs. exits?) Thanks for your ballpark figures though, sort of the range I was expecting. – jim_shook Aug 17 '10 at 21:30
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I think most web business can be valuated or actually sold for 2x - 3x annual revenue as long as there is room for growth, and positive growth (business is not sinking).

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