I'm building a Saas B2B startup and I'm wondering what kind of multiples are used to estimate future exit valuations. Price/earning ratio, price/sales ratio? For instance, if I plan to build a business that sells X monthly subscriptions @ Y per month, I want to tell an investor that using to this particular ratio, I'm looking to build a business worth Z in 5-7 years.
According to Dharmesh, the multiplier for SaaS companies is around 5, where the valuation equation is Valuation = Revenue x Multiplier.
How do you get your multiplier to that? Growth is hugely important. The faster your revenues are growing, the higher the multiple goes. Profitability is negatively correlated with the multiplier for companies about to go public. They are investing in growth, they don’t want dividends.
Factors affecting the revenue multiplier:
How to increase revenue: