Pandemic Valuations (?)

“We’ve” been waiting for a market correction over the past few years and I believe it has come. Hard stop. Regardless of when this global pandemic settles, the markets won’t pop back and reset to what it was. With that, I am curious where startup valuations will land.

Right now most high-growth B2B SaaS companies are usually valued on a multiple of forward-looking revenue over the next 12 months (NTM). EV/NTM multiples are a great way to look at valuations here. This is based on the assumption of future revenues. And historically valuations have been rich. To add to that, most of these companies are still losing money when they IPO. Cash flow hasn’t been of top of mind to investors or CEOs.

Historically public SaaS companies are around ~8x, but more recently is around ~15x (which has been pulled right by the likes of Zoom or even Crowdstrike).

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I’m thinking that a change is coming: (1) profitability will matter moving forward, (2) multiples will dip based on appetite to pay for forward-looking revenues, and (3) companies that are more focused on product-led growth will thrive compared to the companies that require a top-down sales model, on prem-instillation or something with a human touch.

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