Tomasz Tunguz - The 100x ARR Multiple
Tomasz TunguzVenture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. The 100x ARR Multiple
The 100x ARR multiple might be the fundraising meme of 2021. Before, most investors used forward ARR multiples to value companies, but recently, the 100x multiple seems to be a benchmark for SaaS companies raising rounds. Where did this figure originate? How does it compare to the public markets' valuation of companies? Let’s look at the data. Here are the estimated ARR multiples for public SaaS companies. I estimated ARR as the annualized revenue of the most recent fiscal quarter. The distribution of enterprise value to ARR multiples parallels those of EV/NTM revenue in a few ways. First, the range is similar: 2 to about 100. Second, the correlation between the two metrics and revenue growth is identical at about 36%. Third, there’s a power law shape to both data sets. I don’t know if the market has decided to afford highly sought after ARR multiples by looking at this data. But the data suggests a company commanding 100x ARR is supported by the market, if the startup is in the top 5% of businesses. The quartile distribution of multiples tells a different story. The 75th percentile multiple is 26x ARR and the median is 17x. Of course, these multiples are for public companies; anyone can buy shares. The private market has a pattern of paying premiums to public figures because access is the scarcest commodity in startupland. The question before most investors today is: how much of a premium to pay? It depends and the premium implies the number of years of perfect execution the investor credits the startup team. The greater the premium, the greater the future forward expectation of performance. Is it warranted? We’ll know in the fullness of time. Not every company will be as successful as those who top the list in the charts above and achieve billions in revenue growing 70% or more annually. I wonder if it’s the right metric long term. Unlike the forward ARR valuation method, this technique doesn’t normalize for forward growth which means there’s information lost in the figure. Regardless, the 100x ARR multiple seems to be a benchmark in the industry today. It has some foundation in the public markets, but assumes quite a bit of forward execution. |
Older messages
Hex - The Best Product for the Technical Analyst
Wednesday, October 20, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Hex - The Best Product for the Technical Analyst
Using the Reversal Mental Model to Invest Better
Tuesday, October 19, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Using the Reversal Mental Model to Invest Better
Spot.ai - The Future of Video Intelligence
Friday, October 15, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Spot.ai - The Future of Video Intelligence co-
The Two Cap Tables of Crypto Companies: What They Are and How They Relate to Each Other
Monday, October 11, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. The Two Cap Tables of Crypto Companies: What They
Passive Investing in Venture Capital and the Parallels to Public Equities
Friday, October 8, 2021
Tomasz Tunguz Venture Capitalist at Redpoint If you were forwarded this newsletter, and you'd like to receive it in the future, subscribe here. Passive Investing in Venture Capital and the
You Might Also Like
🚀 Virgin To Face Delisting
Friday, April 19, 2024
Plus Q1 earnings kick off, SpaceX exec launches a new VC firm, Tether invests $30M in $SATL and more! The latest space investing news and updates. View this email in your browser The Space Scoop Week
10words: Top picks from this week
Friday, April 19, 2024
Today's projects: Spheria • Narration Box • OnTheFly • AnyCheese • Dumbbe • HASTY • lockrScan • IdeaAize • Mailmo • ProSolvio • GigHunterBot • WeekToDo 10words Discover new apps and startups in 10
[Replay] Building a million dollar beauty brand
Friday, April 19, 2024
Free summit replay extended Hey - great news! We've extended the summit replay for 24 more hours. Watch it here free >> And, I want to highlight one of the inspiring founders, Alicia Scott.
Put it on paper
Friday, April 19, 2024
In case you missed it, here is the full recording of the 668 person workshop I co-hosted yesterday "how to build products of the future". It's completely free to watch here. Put it on
7 prompts for your B2B company’s next LinkedIn post
Friday, April 19, 2024
Plus, tips, news & Buffer updates for your social media journey Image Hey folks 👋🏾 It's been an interesting week in social, with the launch of TikTok Notes (their take on a photo + text
Challenges of Offering an API — The Bootstrapped Founder 313
Friday, April 19, 2024
When you sell access to an API, what should you keep in mind? How would you protect your data but still make it easy to use?
12 hours to go! 🐣
Friday, April 19, 2024
Catch the super early bird rates before they expire! View this email in your browser. 1200 x 380 (Desktop & Tablet) (8) Hey there, There are just 12 hours to go before Summit Summit ticket prices
Why I Switched My Blog to Ghost (and Why You Might Love It Too)
Friday, April 19, 2024
Tired of slow, clunky blogging platforms? I was too! Find out how Ghost changed my blogging life (and my company!), and why it might be the upgrade you need. Salehin Khan Salehin Khan Why I Switched My
Latvia's startup financing gets creative
Friday, April 19, 2024
We visit Riga to explore Latvia's tech scene, layoffs at Stability AI and why climate tech's latest phase will be built on debt. View in browser Notion flagship logo final Good morning there,
How Meta is paving the way for synthetic social networks
Friday, April 19, 2024
Five ways of thinking about Llama 3, its latest large language model Platformer Platformer How Meta is paving the way for synthetic social networks By Casey Newton • 18 Apr 2024 View in browser View in