Valuation Multiples Don’t Matter If Your Startup Is Growing Exponentially

Jason Lemkin has written an excellent post pointing out that a major drop in public market valuations is about to affect SaaS startups:

Lemkin points out that major SaaS players like Workday and Cornerstone have fallen by nearly 50% since February 2014, and predicts that early-stage startup valuations will plummet.

Bad news?  Maybe.  But I prefer to focus on a paragraph tucked in amongst the carnage:

“We’re still just in the second inning of the migration of all business
process to SaaS.  It’s just getting good.  Even if valuations fall 50% …
as long as you grow 10x in a few years … you’ll still be up 5x by then.
 For SaaS start-ups, falling valuations, at least on paper, really only
mean it will take a little longer to grow into your next target

Ultimately, multiples do affect the value of your company.  But there are two factors in the Price/Sales ratio that drive the value of your startup–the multiple is one, but the actual sales is the other, far more important factor.

If you build a profitable company that generates $100 million in revenues, the final multiple isn’t that important, especially if you’re building for the long term.

So let the fund managers worry about the multiples–you should worry about the business.

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