How do you price in a lack of operational maturity?
For a small co-founder run saas business with $11m ARR and $8m ebitda, 4 years old and expecting 45% annual growth. Yet beyond the two technical co-founders, lacks a robust team and very little operational infrastructure, which when implemented would be a meaningful hit to the bottom line. How would you price in the lack of organizational maturity? Would you set aside ebitda as part of a valuation multiple and focus on ARR? Lets say your typical saas multiple is 10x ARR for a mature company, would you price this company differently given lack of infrastructure?
You price it in by paying a lower price upfront. I would ignore EBITDA since its not fully burdened at the moment. I am not sure we are currently living in a world where your run of the mill SaaS company fetches 10x revenue multiple. Look at the closest public comps and precedents - if they are trading 6x - 8x, perhaps a 2-3x lower multiple is justified for the operational lift and risk involved to institutionalize the company.
By the way, I think this is how it should be done. But if a full on process is being run, I am sure some group might come in and propose some crazy multiple if they believe in the sub-sector or the founders.
Unless you have unlimited time to fix this thing on a daily basis, I'd wait to scoop it up after the next institutional investor cleans things up a bit.
ARR businesses are a money pit until they get to scale - to grow at that rate how many new developers are they modeling? Sales force? Cloud or on-premises servers? Admin staff? Etc. Etc.
If you hit it right, you can make a killing; if you don't, you're looking at a massive time-suck.
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