Founder, Practical Founders. Paid advisor to 40 practical SaaS founders who are building valuable software companies without big funding | Host of Practical Founders Podcast | LinkedIn Top Voice
When will high valuation multiples come back to B2B SaaS acquisitions so I can sell my company for the highest premium? Two CEOs with B2B SaaS businesses almost to $5M ARR asked me this question last week. They remember the boom time with crazy 20x+ valuations for early-stage SaaS acquisitions from late 2020 to early 2022. There were big IPOs, zero interest rates, excited buyers, and boosted tech spending during the pandemic only three years ago. Then reality came back quickly: - There have been less than ten software IPOs in 2023 and 2024. - Public B2B SaaS companies are valued at 6x revenues, on average. That's a rational reversion to the mean. - Interest rates are much higher, and debt-based acquisitions have slowed. - Private-equity-backed acquirers and investors make up 60% of all software acquisitions in 2023 and 2024. PE buyers won't pay the high premiums that eager strategic buyers used to pay. - SaaS buyers are more frugal and ROI focused. - VCs are less focused on "legacy" B2B SaaS companies and are looking for big wins with disruptive AI-powered blockbusters. I expect all of those to stay about the same in the next few years for B2B SaaS companies. So, if you are thinking about selling your SaaS company someday soon, you should expect valuations between 3x and 10x revenues, depending on your growth rate, profits, predictability, strategic value, and buyer urgency. Don't count on 20X revenue multiples when you sell your business, despite what happened in the 2021 boomtime. There's still some good news with all of this: - The number of software acquisitions still continues to increase every year. Many of these are distressed companies that ran out of VC funding, but there is still a very active acquisition market, especially with enterprise values under $50M. - Global software technology spending continues to increase by 15% every year. Software is still eating the world. - SaaS businesses between $2M and $10M ARR still attract a lot of interest from buyers who will pay higher multiples of revenue, not lower multiples of EBIDTA profit of most other businesses. Three cheers for recurring revenue SaaS! So, keep building your software company to grow revenues steadily and efficiently. Maybe even take some money off the table from profits. Keep investing in your product and growth, using AI to do more with less across your business. Remember, at a 5x multiple, your company is still worth twice as much when you double your revenues. So a "low" 15% growth rate doubles your revenue in 5 years. Keep going. Be practical my friends. #practicalfounders
Ben King
3w
Do they really want to sell at the top? If you sell at the top then retire you have won the battle. If you sell at the top, then the company stagnats, then you leave and your next startup is looking ripe for an aquisition it might have been better to leave a bit on the table for the aquirer.
Amy Volas
3w
Then, measure whether attempting to get a bigger multiple is worth the opportunity to sell at a practical rate today. What ifs to chase shiny objects can leave so much opportunity on the cutting room floor. I was just talking to a founder who is kicking himself for not selling before because today, it's worth pennies on the dollar... There will always be a better deal. The real answer is whether we can get it, whether the timing works out, and whether we are confident in our decision to stick with it or sell. Being rooted and confident in the decision is key.
Great points Greg Head. I’d also add is that it’s not just top line revenue that matters; profitability does too. Gone are the growth at all cost (2021) type scenarios, acquirers are digging into ebitda and other operational metrics of potential acquisitions.
Tom Wood
3w
I'd take a 10x revenue multiple all day long. I'm projecting £12m ARR by 2028...so maybe by then, we could also see an increase.
Public multiples at 6x *already* support private multiples at 10x+ for earlier stage companies in the revenue range you described because the road from 10M/yr revenue => 1B/yr is long If public was 2x, or we're talking later-stage series d/e/f/etc VC loss addicts, different story
Do you have advice for evaluations for pre-revenue (pre-seed) SaaS valuations?
All you needed were those last two sentences, Greg. I think founders often lose focus chasing VCs, multiples, etc.
I think founders need to assess their moat and key to the multiple offered is perhaps how well protected their SaaS is from a newer entrant… and how quickly this could affect the rate of churn. We’ve moved into an era of rapid decline as much as rapid growth. Disrupters themselves getting disrupted?
Arnel Bukva
3w
This is interesting. Recently, many of our SaaS clients have been focusing on building organic traffic through SEO, social media, and podcasts. Their ultimate goal is to create a community or an owned/earned audience, which they believe will significantly enhance their valuation. Greg Head, in your experience, have you observed this as well? Is organic audience/traffic considered a key metric for valuation?
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3wAnd, founders, you have to know your numbers. 5x is not automatic and if you want to push it higher, you have to be able to speak to the numbers. If you'd like my 5 Pillar SaaS Metrics Framework, just let me know 😀