Valuations during a downturn

Valuations during a downturn

If you were fundraising for your Saas 6 months ago, you might have noticed that valuations were unbelievably high - today, things have changed. As inflation grows and talk of a recession become real, valuations have dropped like a stone in the ocean. Understanding your true valuation is now more important than ever, as the funding market adjusts to this new reality.

                                                                    Via: Saas Capital 

Your financial model can and should be relied upon to understand your valuation and your fundraising prospects.

Here are some metrics to keep your eye on:

  • Revenue Multiple 
  • Growth Rate
  • ARR

Revenue Multiple: Projecting multiple outcomes to your revenue growth is essential in determining your valuation. This can be viewed in the standard Bear/Bull market pattern, or from a middle ground point of view.

Growth Rate: Your growth rate is usually viewed in the context of your current stage, and similar startups. Growth rate is important to investors as it gives them an expectation of what is to come from your company.

ARR: Your annual recurring revenue, is important as it gives visibility on the remaining runway among other future projections. Recurring revenue also opens the door to many more funding options like Invoice Factoring that allow growth without dilution.

Here are the directions to use the Estimated Valuation Calculator.

1. Navigate to "File" and select "Make a Copy". This will give you the ability to  add your own data

2. Select the "Estimated Valuation Calculation" tab. Note: The orange tabs are manual assumptions/inputs

3. Find "Prior Round," and input your company's prior round type and enter the post-money valuation

4. Under "Next Round Assumptions," fill out the estimated date of your next round, whether your revenue is recurring or not, current ARR or current forward annual revenue estimate, and projected ARR or forward revenue estimate at the time of the next raise

             a. If your company currently has $0 ARR/forward revenue, growth will be calculated assuming a minimum of $25k

             b. If the multiples and valuations (cells C16/C17 and C20/C21) show 0 or a range from 0-X, then this implies valuation is potentially lower-range and the company may have a hard time raising because it does not fit the growth and/or scale profile that VCs want to see

5. Revenue and growth ranges for the data tables/line chart can be modified by changing the orange highlighted cells in the data table headers

6. The “Valuation Logic” tab contains the logic around multiples, which can also be adjusted if you want to be more aggressive/conservative

Thank you! Your submission has been received!
Oops! Something went wrong while submitting the form.

Follow us on Facebook, Twitter, Instagram, and LinkedIn.