SaaS Valuation Multiples

SaaS valuation multiples are the ratios used to estimate a SaaS company's worth based on its financial metrics. The most common is the revenue multiple: Company Value = ARR × Multiple.

Common Valuation Methods

1. Revenue Multiple (Most Common)

Valuation = ARR × Revenue Multiple

2. SDE Multiple (for small SaaS)

Valuation = Seller's Discretionary Earnings × Multiple

Typically 3–5x SDE for businesses under $1M ARR.

3. EBITDA Multiple

Valuation = EBITDA × Multiple

Used for larger, profitable SaaS companies. Typically 10–25x EBITDA.

What Affects the Multiple?

Increases the multiple:

• High growth rate (>30% YoY)
• Net revenue retention > 110%
• Low churn (< 3% monthly)
• Large TAM (total addressable market)
• Strong competitive moat
• High gross margins (> 80%)

Decreases the multiple:

• Declining growth
• High customer concentration
• High churn
• Small market
• Commodity product

AI-Run Company Valuations

AI-run companies challenge traditional SaaS valuation frameworks:

Arguments for higher multiples:

• Margins are 80–95% (vs 60–75% for traditional SaaS)
• Costs don't scale with revenue (no hiring needed)
• Lower operational risk (AI doesn't quit)
• Faster iteration speed

Arguments for lower multiples:

• Newer model, less proven over decades
• Key "AI risk" — dependency on model providers
• Less differentiation if AI makes everything replicable
• Regulatory uncertainty

Our view at EvolC: The market is currently undervaluing AI-run companies because traditional frameworks don't account for the margin and efficiency advantages. Early investors benefit from this mispricing.

Value AI companies on EvolC →