Startups For the Rest of Us Episode 513 | SaaS Valuations + Dos and Don'ts When Selling A SaaS
Sep 8, 2020
David Newell, a Senior Advisor at Quiet Light Brokerage, shares insights on SaaS valuations and the intricacies of selling SaaS businesses. He discusses the importance of treating your business as a sellable asset and highlights current market trends. Newell provides valuable lessons on Seller Discretionary Earnings (SDE) and revenue multiples, emphasizing the need for clean finances and documentation. Listeners will also learn about the best practices for sellers and what top buyers look for in a SaaS acquisition.
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Run SaaS Like Sellable Asset
- Run your SaaS business as if it is a sellable asset to improve efficiency and increase value.
- This mindset reduces stress and dependence on being deeply involved in daily operations.
SaaS Valuation Depends on Stage
- SaaS business valuations can be based on earnings multiples or revenue multiples depending on the business stage.
- Smaller, profitable SaaS businesses usually sell on net profit multiples, while larger scale apps sell on revenue multiples.
Revenue Multiples Kick In At $1M ARR
- Revenue multiples become relevant around $1M ARR with low churn under 4% monthly and 40%+ year-over-year growth.
- Proper team structure and strong growth help transition SaaS from profit-based to revenue-based valuations.