Buying and building a portfolio of small, enduring, niche vertical SaaS businesses that punch like $50M ARR scale firms 🏴☠️ ⚡️ ---- Follow for lessons on acquiring and operating
Valuations are a VERY intimidating topic for most Micro SaaS Founders / Sellers and Acquisition Entreprenuers. And rightfully so. There is almost no publicly available data to inform benchmarks and assumptions (think: what similar firms sold for and the performance metrics of those firms), and most deals come with unconventional deal structures (seller’s notes, earnouts, etc.). To make matters worse, other valuation methods rely on complex financial topics and require solid modeling skills. Oh ya, and the stakes are HIGH. For most, these transactions represent a life’s work or life’s savings. To demystify the topic, I'm excited to explain conventional valuation methods and discuss the challenges unique to Micro SaaS. Let's start with multiple-based valuations: Imagine you're valuing a house. You wouldn't just pull a figure from thin air. Instead, you'd consider similar properties, their sale prices, the size, the amenities, right? The same principle applies to multiple-based valuations – consider it the "real estate appraisal method" for businesses. For instance, you have a SaaS company earning $1 million ARR. Your industry's average ARR multiple is 2.5x. Your company's value? $1 million * 2.5 = $2.5M! Simple, isn't it? But, here's where we halt: DO NOT wholly rely on ARR multiples! Yes, ARR offers insights into growth potential and customer retention, but Micro SaaS is all about acquiring and growing profitable businesses to yield income. Hence, EBITDA multiples are your true marker. Be mindful, though, of limited public data, fluctuating market sentiments, and overhyped growth prospects—all these can sway your valuation, often unfavorably.
CEO @ Declarative Cloud | Google Cloud Architect
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