What determines a company's valuation multiple more: revenue growth rate or profitability?

Rick Zullo · Aug 23, 2023

Investors and founders lost financial acumen by focusing on revenue multiples instead of business model quality and a path to profitability and free cash flow

The SaaS companies that turned profitable had business models that enabled it, while many consumer and fintech companies that cut back saw growth collapse and are now largely dead — showing revenue chasing doesn't create shareholder value

20:48 20VC: NEW FORMAT: Mega Funds Will Come Back, Why Markups Have Corrupted VC, Why RIFs Should Always Be An Embarrassment To SaaS Founders and Why Pitching is BS and Fake with Jason Lemkin and Rick Zullo

Deven Parekh · Oct 11, 2023

Public software multiples are now driven far less by revenue growth than in 2020, with the remaining explanatory power coming from path to profitability and free cash flow

The correlation between revenue multiple and revenue growth was around 72% in 2020 and is in the mid-thirties today; CEOs can see this directly in the public comps and research

20:10 20VC Roundtable: Are IPOs Back? Is Growth Dead? What Does it Take to Raise a Growth Round Today? How Do VCs Solve The Liquidity Challenge? Will We See a Massive Resetting of Valuations? AI Hype Growth Rounds?

Harry Stebbings · Aug 26, 2024

Publicly accepting slow growth as the new norm gets a company severely punished on price, regardless of how small the actual miss is

Salesforce missed earnings by an insignificant amount relative to its revenue base, but the market reacted to management's acceptance of a second consecutive quarter of slower growth and a period of continuous slow growth

18:46 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

Harry Stebbings · Aug 8, 2025

A $160M business growing 300% is a compelling investment, but a $200M profitable low-growth business is worth barely more than triple that — you'd be lucky to get $600M for it

Growth, not profitability at scale, is what drives the multiple

39:58 20VC: The $BN Greenoaks Backed Protein Bar | Hitting $100M Revenues in David's First Year: Lessons & Mistakes | $0 to $600M: The Untold RXBAR Story | Product-Market-Fit, Pricing, Branding: What Every Founder Gets Wrong Today with Peter Rahal

Jack Zhang · May 27, 2025 · hedged

Investors today give companies almost no valuation credit for very high growth rates because they got burned in 2021

Companies that were growing 100% collapsed to 20% growth within months after 2021, so investors now anchor on public market comps and disbelieve that 90% growth can be sustained for long

73:17 Post 2021 burn makes investors discount high growth rates in valuation

Jason Lemkin · Oct 11, 2023 · hedged

The current regime of pricing on profitability rather than growth is unlikely to hold through 2024-2026

Historically, years in which profitability drove tech valuations have been a minority of years

21:31 Profitability driven pricing regime is a temporary anomaly that will revert to growth

Harry Stebbings · Aug 26, 2024

There is a generation of public SaaS companies — Dropbox, Box, Twilio, Fastly — that are a real question mark because they combine low or flat growth with worse-than-ideal SaaS margins

They fail on both of the variables that matter, growth and gross margin

17:27 Companies weak on both growth and margin face the most severe valuation question marks