Hi all,
Does anybody here have experience valuing SaaS companies, as opposed to traditional licensed software firms? I'm looking for key valuation, operating (etc..) metrics and other general advice. Links to white papers are also appreciated.
I've already found a white paper by River Cities, so other papers are certainly welcome.
Thanks for your help
Annual Contract Value (ACV) and annual retention/attrition rates are as important as revenue for SaaS companies.
I work in an operational capacity in a SaaS business... no experience with valuation.
this is the sort of stuff I am looking for...
Anyone else?
unlevered free cash flow, my friend
interested as well
Are annual contract values typically discounted to PV then summed? Should the discount rate reflect internal discount rates, the likelihood of customer default, some combination thereof, or other?
Interesting related posts: http://www.forentrepreneurs.com/saas-economics-1/ http://www.forentrepreneurs.com/saas-economics-2/
http://www.slideshare.net/Rinky25/software-as-a-service-4195627?src=rel…
from william blaire. pretty old though.
i wouldn't bother putting in ACV metrics into any DCF model. rather, ACV growth and predictable attrition make SaaS companies more valuable than traditional software firms because of more predictable earnings and cash flow. i think you would use the same cash flow metrics as any other firm when putting together a DCF.
uFCF multiple is the most popular trading metric for valuation, but for some companies that are still growing rapidly (CSOD, N, MKTG, etc.), revenue multiples are often used. Well-established companies like CRM, TLEO, etc. will have significant uFCF multiples.
As far as drivers for growth, retention rates as mentioned before are important. SaaS companies want to have high recurring bookings ("stickiness"). Also, growth in the number of customers is important, as well (profitability improves with scale, obviously). However, all SaaS companies have some implementation services, as well.
m&a analyst here, just acquired a SaaS business. feel free to PM me.
biggest difference is the switch from a 'bookings' to a monthly recurring revenue mindset. as a result retention is extremely important and new sales are less important (those up front license fees no longer exist...)
Thanks to all for the input.
Just wanted to add another resource to the list, pretty comprehensive glossary:
http://montclairadvisors.com/blog/2010/03/got-for-saas-and-cloud/
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