The events of the past few weeks have undoubtedly made investors, founders, and startup employees take a hard look at the performance of their companies. Investors worry about the valuation of their portfolio companies, founders worry about their ability to fundraise and the length of their runway, and employees worry about the stability of their paychecks and value of their options.
As former employees at venture capital and private equity firms, we wanted to bring transparency into how technology startups, specifically high-growth SaaS businesses, are actually valued by investors. To do so, we've created a simplified valuation model in Google Sheets here, which you are free to modify based on your company's historical data and how you think it will perform in the future.
A quick caveat in advance - this model is of course highly simplified, and intended to be used for quick back-of-the-envelope valuation math. It's also just a model - there are many more assumptions that can be added, and actual investment models are significantly more complex. If you want to discuss how to model other types of businesses or create a more advanced SaaS model, please shoot us an email and we're always happy to talk.
Here's what the core of model looks like (all data is fake):
Don't worry, we've included comments directly in the Google sheet that explains all of terms and assumptions used in the model, from ARR to EBITDA and everything in between.
For a quick explanation of how the model works:
- Fill in or adjust the "Operating Model" tab based on the expected revenue and expenses of your company
- Based on an assumed exit multiple, length of hold period, and expected return for an investor in the company ("desired IRR"), the model shows what valuation an investor could invest at today (i.e., what your startup is actually worth)
Again, there are many additional assumptions you can add to the model, but this is a good start to understanding the primary drivers of value. If you have any questions, please send us an email at email@example.com.