$1M ARR triggers revenue multiples instead of SDE for SaaS acquisitions
David Newell · Episode 513 | SaaS Valuations + Dos and Don'ts When Selling A SaaS · Sep 8, 2020 · at 10:34
David Newell, an M&A advisor at Quiet Light Brokerage, discusses SaaS valuation benchmarks with host Rob Walling.
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“So as a rough guide, I would say that the revenue multiple starts to kick in as an approach or a valuation approach at, like you said, a million dollars in ARR. And that's not like an absolute hard and fast number, but the reason it's chosen there is typically because the business has started to achieve a level of scale at which the buyers that are operating there, like PE and Strategics, feel that it's commensurate to like apply that kind of valuation approach. There are some other caveats to it, which is that the business also needs to, at that point, have been really reducing its churn down to Four percent or lower per month. It really needs to have a proper team in place, proper CTO, proper development, customer support, onboarding, sort of customer enrichment team, all of which would have done the work of, you know, reducing the churn component. And the last piece is it really needs to be starting to grow very, very strongly, like at least 40% year over year in revenue growth.”
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