Through the Roof – How to Maximize Your Valuation

Pål Malmros
Photo: Pierre Ekman

Currently, SaaS valuations are going through a volatile period driven by rising interest rates, inflation, and more. Nevertheless, SaaS valuations are still among the highest of all sectors, with multiples exceeding most other types of companies. The reasons why investors love SaaS are the following:

  • Impressive Growth Rates
  • High Gross Margins
  • Sticky Customer Base
  • Predictable Revenue
  • High Capital Efficiency
  • And Much More

But because of the volatility we’re currently experiencing, many SaaS companies might wonder what they can do to maximize their appeal to investors and, therefore, their valuation.

That’s why Pål Malmros, Partner at Verdane, shared in this session what parameters investors primarily look at when valuing your business. Keep reading for a rundown of the key metrics, parameters, and elements you need to keep in mind when optimizing your valuation.

7 steps to maximize your valuation

Remember the rule of 40

The rule of 40 means that a SaaS company’s combined growth rate and profit margin should exceed 40%. In recent years, the rule of 40 has gained importance and often correlates with the valuation. In short, companies that grow fast without burning a lot of cash are valued higher. If you’re not very profitable on the other hand, it’s essential to show your investors a clear path on how you’re going to tackle that problem. 

Showcase your inbound lead generation 

Every successful SaaS company reaches a point where excellent outbound lead generation isn’t enough to maintain growth. Instead, inbound lead generation becomes very important. So if you have a successful inbound lead generation strategy, showcase this to your investors as this quality is very highly regarded. 

Maximize your net retention 

Net retention is the holy grail of SaaS. To appeal to investors regarding you need to be able to show you’re on top of net retention, that you can predict churn, and that you know how to identify upselling opportunities.

Focus on your ICP 

Understanding your ICP is crucial and will lead to a long line of benefits. A laserfocus on the right customers will allow you to build more efficient R&D and G&A. Knowing precisely who you want to serve and who you serve best will streamline your company’s backend, leading to higher margins.

Get account management right

Well-functioning account management is a must for any successful SaaS company. This is achieved through a deep understanding of your ICP, being able to deliver additional value to your customer, and identifying upselling opportunities. 

Optimize your CAC:payback ratio

A good CAC:payback ratio is among the most critical factors when investors value a SaaS company. Here you need to be able to display how you work, how you create leads, what your CAC is, and ultimately what your CAC:payback ratio is, as well as your CAC:LTV. 

Build a strong employer brand

We’re currently experiencing a labor market where it’s challenging to attract and retain talent, which is why it’s crucial to build a strong employer brand. To do this, you need clear career paths and a culture where young stars can thrive. Work on your eNPS and show investors that you have a people strategy in place.  

Build great cohorts

When SaaS companies show their net retention rates, the result is often misleading as the data shown is just a snapshot from the previous year. Instead, take the time to build outstanding cohorts where you present and analyze your growth journey correctly and in detail. You need to really understand how your net-retention works to do this well. This is truly a place for you to shine since this is where SaaS investors spend most of their time.

Bonus tip: drive growth through M&A

Although mainly for mature SaaS companies, embracing M&A can be an excellent way to drive growth by acquiring competing or adjacent companies. To be successful at M&A, you need to build a capable M&A team that can act on opportunities. This will enable higher growth rates in the long run and is something investors love to see.