58. How do you estimate the valuation of a SaaS startup using SaaS metrics? Could it be as simple as ARR* X=valuation, where X functions in a similar way to P/E ratios of more mature companies? For a (x) reasonably hot start-up in a (y) a good space with a (z) good team, and (aa) potential (but unproven) leadership position in a market/category, 100x MRR, as Christoph Janz notes, is a good starting point. But ... if you are super hot, the sky is the limit (e.g. Slack). If you don’t look like you’ll ever be hot, 100x MRR may prove impossible. Let me zoom out one level, though. All early stage valuations are too high in isolation. I say this now as an early-stage investor, who is happy to write these checks. But I am quite serious. What I mean is, let’s say you hit (x), (y), (z) and (aa) above. You are at $100k MRR and valued at $10m. Let’s say you did a seed round before then at $5m. The guys that invested in the second round, at $10m paid 2x -- but got a much, much better deal risk adjusted. Yes, they paid 2x the price, but you got to Initial Traction and 100+ customers and these guys only had to pay 2x the price for an elimination of 90% of the risk. A much better deal. Then, 18 months later, you grow 150% and are at $250k MRR, and have added key hires to the management team, tripled your logo accounts, etc. etc -- and go to raise more capital. That next round is even a much, much better time to invest (risk-adjusted) as unless you’ve crossed the chasm and become “hot”, your valuation multiple has stayed constant. Basically, I don’t think any early-stage SaaS valuations make any sense in isolation. They all are too high vs. public markets (if you are a late stage investor) or vs. the next round unless you become super hot (if you are an early-stage investor), and the earliest, pre-revenue-ish rounds just structurally can never be cheap enough to logically account for the risk. The only way they make sense vs. public market comps and risk is if you are convinced the company will, by the next round, but not today, accelerate in growth and become super hot even though it isn’t super hot today. And most SaaS companies don’t actually just raise a few bucks and then all of a sudden accelerate after that. So my real advice to founders is -- do everything you can to paint yourself, and put yourself on the track, to becoming super hot. Fake it until you make it. SAASTR.COM 55