Is a fixed revenue-multiple heuristic (e.g., 10x revenue) a reliable guide for valuing high-growth software companies?

Akshay Kothari · Sep 18, 2024

Founders should have a deep understanding of long-term valuation metrics: you can raise on hope today, but absent an acquisition you will eventually be valued at a multiple of revenue or cash flow, historically averaging about 5-10x revenue.

Long-run valuation reverts to historical SaaS revenue and PE multiples regardless of what you raise on now.

Scope: unless you're just trying to get acquired

20:48 20VC: Notion's Founder on "Founder Mode": When it Works & When it Doesn't | Why The Way Startups Fundraise & Construct Boards is Broken | Raising at a $10BN Valuation in Peak Bubble Times and How Notion Has More Money Than Ever Before with Akshay Kothari

Harry Stebbings · May 12, 2025

The 10x revenue multiple rule holds across cycles, so a $50B company needs $5B of revenue — which makes the Airtable bull case a stretch.

Conventional rules are conventional for a reason, and Bill Gurley's article established that companies are valued at roughly 10x revenue across cycles.

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Harry Stebbings · Sep 12, 2025 · hedged

Bill Gurley's 10x revenue multiple is a finance heuristic that holds true.

Scope: framed as 'kind of' the heuristic

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Eric Paley · Sep 20, 2023

The fixed-number mindset about valuation is the core error; a company's fair value is a wide range and a probability distribution, not a single figure

Interest rates and markets change, and no two companies are alike, so extrapolating a single 'correct' multiple across companies is invalid

Scope: puts good SaaS multiples at roughly five to fifteen times

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Ryan Petersen · Nov 13, 2023

A startup's valuation is not 'the' value of the company — it is a probability-weighted collapse of many possible futures at a moment in time, so employees should ignore the mark and work to make the good outcomes more likely

Any company's value is the net present value of uncertain future cash flows; the future is inherently uncertain, so an $8B mark just encodes a distribution including outcomes of zero and of $800B

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Akshay Kothari · Sep 18, 2024

In the long run a company's valuation is a multiple of revenue, with the premium determined by whether it can keep growing fast and do so efficiently

29:59 20VC: Notion's Founder on "Founder Mode": When it Works & When it Doesn't | Why The Way Startups Fundraise & Construct Boards is Broken | Raising at a $10BN Valuation in Peak Bubble Times and How Notion Has More Money Than Ever Before with Akshay Kothari

Mitchell Green · Mar 28, 2025

The right underwriting assumption is that a software company growing 15-30% a year exits at four to eight times revenue, with ten times as an absolute ceiling for 40% growers

Revenue multiples are just shorthand for EBITDA, so you should assume reasonable rather than peak multiples even though the five-year model itself is wrong

Scope: the model is always wrong; this is a band, not a point estimate

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Woody Marshall · Oct 11, 2023

Revenue multiple is an output, not the real valuation metric; companies evolve to trade on gross profit, then EBITDA, then net income

Facebook was growing like a weed and very profitable when private, and today nobody writing about Facebook talks about revenue — they talk about net income; investors must forecast where the business sits on that continuum at the end of a five-year hold

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Imran Khan · Aug 26, 2024

Revenue multiple is a 'BS' valuation multiple that investors have little reason to care about

Investors should care about cash flow and earnings, not top-line multiples

0:00 20VC: Why the IPO Market is not Closed | Why Revenue Multiples are BS and Founders Need to Change | Advice From Jack Ma, Jamie Dimon and Evan Spiegel | Lessons from Taking Snap & Alibaba Public with Imran Khan

Mark Suster · May 1, 2024

Private software valuations in 2021 (50–100x next-twelve-month revenue) were indefensible, given public software traded at 24.6x NTM against a ten-year average of 9.6x and a twenty-year average of 6.2x

Public comps define the plausible range, and both public and private markets had blown far past both the low and high watermarks of that range

Scope: about the November 2021 market

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Harry Stebbings · Mar 10, 2025

100x revenue multiples, completely unheard of a decade ago, are now relatively normal — though he still considers them crazy

Scope: he and others still think the multiples are crazy

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Deven Parekh · Oct 11, 2023 · hedged

A $50M ARR SaaS company growing 50% with no burn and 100%+ SMB net retention is fundable for growth and worth at least the Klaviyo multiple, with deals getting done north of that for high-quality companies in big markets

Investors won't underwrite that everything trades at six times revenue forever, though they also won't assume a return to 17x; you need some rationality about the exit multiple

43:54 Quality smb saas with high growth and nrr is worth at least the going public comp multiple

Jason Lemkin · May 6, 2022

The 100x ARR valuation norm will probably work out in aggregate but makes no sense on many specific deals, because a company priced at 100x ARR has to at least quintuple the following year on high-quality revenue and most don't

100x ARR is justified for a Datadog or Snowflake, but most companies getting those valuations have a merely okay following year, and a compounding set of problems then sets in

25:50 100x arr pricing works in aggregate but fails for most individual deals lacking quintupling growth

Imran Khan · Aug 26, 2024

Revenue multiples are only appropriate for high-gross-margin businesses like SaaS with contractual revenue; low-gross-margin businesses such as delivery or consumer companies should not be valued on revenue multiples

Gross margin is structurally hard to change (maybe 100-200bps of cost improvement) while people costs are easy to manage, so a business starting at 20% gross margin can never justify a high multiple, whereas SaaS gross and steady-state profit margins let you predict cash flow

14:23 Revenue multiples only suit high gross margin contractual revenue businesses

Imran Khan · Aug 26, 2024

Google's reported $46B price for Wiz would require roughly $1.2–1.3B of revenue and sustained growth to hit a ~20x run-rate revenue multiple like CrowdStrike's pre-incident level, and such a snapshot valuation is not sustainable because SaaS businesses ultimately trade around 7x revenue

To justify $46B on sustainable multiples Wiz would need $1.2-1.3B of revenue while maintaining its growth rate, and something always happens to break peak multiples

24:21 Saas businesses ultimately settle around seven times revenue so peak multiples are unsustainable

Akin Babayigit · Jun 26, 2023 · hedged

The revenue multiples applied to gaming companies are not totally fair

Gaming companies are valued at three to four times revenue while SaaS companies get ten to thirty times, yet gaming cohort behaviour shows extremely sticky retention with players keeping these games as part of their lives for very long periods

47:44 Gaming companies are undervalued relative to saas multiples despite comparable retention

Jason Lemkin · Sep 20, 2023

If good B2B companies at $150-250M of revenue trade at only six or seven times revenue, much of the venture model in B2B is broken and the cascading damage down the stack hasn't been felt yet

If great companies are worth under $2B, investors won't want to do the $300-400M rounds, and that repricing cascades all the way down to seed

61:46 Low exit multiples at scale would break the venture funding model cascading down to seed

Jason Lemkin · Jan 13, 2023

At least one active growth investor's 2023 thesis is 15x ARR for top-decile companies: $50M+ ARR, 50–100% growth, and profitable or close.

They're taking the multiple risk but not the risk of needing another check, so profitability is the condition.

19:54 15x arr for top decile 50m plus arr profitable companies is the 2023 growth thesis