Valuation Methods for Growth Investing Funds
For those of you at growth(y) investing shops, what are the typical valuation methods do you utilize? How much emphasis do you and the team put on valuation?
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Both Valuation (McKinsey) and The Dark Side of Valuation (Damodaran) have chapters on how to value growth companies.
For software growth investments, multiple of ARR informed by growth rate and gross margin.
How would you know if the multiple is sensible. The multiple for high growth SaaS companies has now been expanding for almost a decade, with no end in sight.
Agree with increasing trend in multiples. For a relative comparison you could plot “rule of 40” vs ARR multiple.
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