When SaaS Valuations Weren’t So Rosy

With Thomasz Tunguz’s recent post The 5 Forces Driving Startup Valuations Today it reminded me that SaaS valuations weren’t always so rosy. Today, the median forward multiple for public SaaS companies is 8.5x (meaning, these companies are valued at 8.5x expected revenues).

10 years ago we were out actively raising money for Pardot after hitting $1M in annual recurring revenue. We met with 29 different venture firms in Atlanta, D.C., Boston, and Silicon Valley. After being turned down several times with the message that the total addressable market for marketing automation was too small (hah!), we had three interested parties that floated valuations and wanted to talk potential term sheets.

By the time of these advanced conversations, we had $1M in trailing twelve months recognized revenue, $1.3M annual run rate, and 300% growth rate. Here were the verbal offers:

  • $500,000 investment at a $2M pre-money valuation
  • $1M investment at a $2.5M pre-money valuation
  • $5M investment at a $7M pre-money valuation

After doing some spreadsheet math it became clear that we were better off not raising money and continuing to go it alone. We decided not to raise money and kindly discontinued conversations with the VCs. If the valuations back then were what they are today, the spreadsheet math would have likely turned out differently.

Know that SaaS valuations have never been better but that we’re in unusually good times — it wasn’t that long ago when they were substantially lower. Still, do what’s best for the business and don’t raise money just because valuations are high.

What else? What are some more thoughts on SaaS valuations?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

w

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.