SaaS Valuation Multiples: How Investors Value Software Companies

Software companies are usually valued as a multiple of their revenue or annual recurring revenue, rather than profits, because many are growing fast and reinvesting heavily. A company with US$100 million in ARR valued at US$1 billion trades at 10 times ARR. But multiples vary enormously, from under 3 times to more than 50 times, depending on growth, retention, margins and market mood. This guide explains how SaaS valuation multiples work, what drives them, and how to use them sensibly.

The basic multiples

• EV/Revenue: enterprise value (equity value plus debt minus cash) divided by revenue, usually trailing twelve months or next twelve months.
• EV/ARR or valuation/ARR: common for private software companies, using current ARR. Our guide to ARR versus revenue explains the difference.
• EV/EBITDA or price/earnings: used for mature, profitable software companies, as for other industries. See our guide to EBITDA multiples.
• EV/gross profit: useful when comparing companies with very different gross margins, such as AI companies with high computing costs.

What drives higher multiples

Growth

Growth is the biggest driver. A company growing 80% a year will usually command a much higher multiple than one growing 15%, because its revenue in a few years will be far larger. Investors are effectively paying for future revenue.

Retention

High net revenue retention means existing customers spend more each year, making growth more efficient and predictable. Companies with NRR above 120% typically earn premium multiples.

Gross margin

Traditional software often has gross margins of 75% to 85%. Companies with lower margins, because of hosting, payments costs or AI computing, usually trade at lower revenue multiples, since each dollar of revenue produces less profit.

Profitability and efficiency

Since 2022, investors have rewarded companies that balance growth with profitability. The Rule of 40, growth rate plus profit margin, is widely used to compare them.

Market position and size

Category leaders in large markets earn premiums, as do companies with strong network effects or high switching costs.

Interest rates and market mood

Multiples rise and fall with interest rates and investor sentiment. In 2021, many fast-growing SaaS companies traded at 30 to 50 times revenue or more; by 2023, many had fallen to well under 10 times. Since then, AI companies have commanded very high multiples while many traditional SaaS companies have stayed lower.

Private versus public multiples

Private company valuations often look higher than public comparables for several reasons. Private rounds use preferred shares with protections, which can inflate headline valuations. Private valuations may be set by a few enthusiastic investors rather than a broad market. And private companies are often growing faster than public peers. When a private company goes public, its multiple often moves towards those of public peers, which is why some IPOs price below the last private round, as reports suggested for Razorpay.

Examples from our database

Using figures from our company profiles, here are approximate multiples based on the latest disclosed valuation and revenue or ARR. These are rough calculations to illustrate the range, not precise analyses; dates of valuation and revenue don't always match.

• Vanta: US$4.15 billion valuation (July 2025) against more than US$300 million ARR (April 2026), under 14 times, partly because the valuation predates much of its growth.
• Glean: US$7.2 billion (June 2025) against more than US$300 million ARR (May 2026), about 24 times.
• Lovable: US$13.3 billion (August 2026) against US$500 million annualised revenue (June 2026), about 27 times.
• ElevenLabs: US$11 billion (February 2026) against more than US$500 million ARR (April 2026), about 22 times.
• Cyera: US$12 billion (June 2026) against reported ARR above US$150 million, around 80 times, an example of a very high multiple.
• Mirakl: US$3.5 billion (2021) against US$218 million ARR (2025), about 16 times on a stale valuation.

The range shows how much multiples depend on growth expectations and timing.

A worked example

Two companies each have US$200 million in ARR.

• Company A grows 70% a year, has 130% net revenue retention and 80% gross margins, and is close to break-even.
• Company B grows 15% a year, has 100% net revenue retention and 65% gross margins, and is modestly profitable.

Investors might value Company A at 20 times ARR (US$4 billion) and Company B at 5 times (US$1 billion). In three years, if growth continues, Company A could have about US$980 million in ARR and Company B about US$300 million, which explains why investors pay so much more for A today. If Company A's growth slows sharply, its multiple would fall, and its valuation could drop even as revenue rises.

AI startup multiples

Many AI companies are valued at 20 to 100 times run-rate revenue or more. Investors justify this with extremely fast growth, sometimes tripling revenue in a year. The risks are that AI revenue can be less sticky, gross margins lower because of computing costs, and competition intense. Our guide to the most valuable AI startups discusses these businesses in detail.

How to use multiples sensibly

1. Compare like with like: same metric (ARR or revenue), similar growth and margins.
2. Use current figures: stale valuations or revenue distort multiples.
3. Build a peer set: our guide to building a comparable companies list explains how.
4. Adjust for growth: some investors divide the multiple by the growth rate to compare companies growing at different speeds.
5. Remember multiples change: a company's multiple will usually fall as its growth slows, even if it remains successful.

Forward versus trailing multiples

Multiples can be calculated on past revenue (trailing twelve months) or expected revenue (next twelve months, often called forward). For fast-growing companies, forward multiples look much lower than trailing ones, because revenue is expected to rise sharply. Public market analysts often quote forward multiples for software companies; private investors often use current ARR. When reading a multiple, always check which basis it uses, otherwise you may compare a forward multiple for one company with a trailing multiple for another and draw the wrong conclusion.

The role of public comparables

Private investors anchor their thinking on public company multiples, adjusted for growth and quality. If listed software companies growing at 25% trade at around 6 to 8 times forward revenue, a private company growing at 50% might justify a premium, while one growing at 15% would usually trade at a discount. When public software multiples fall, private valuations follow with a lag, which is why many companies raised "flat" or "down" rounds in 2023 and 2024 after the 2022 market correction. Our guide to down rounds explains that dynamic.

Multiples in acquisitions

When a software company is acquired, the price paid is also often expressed as a revenue multiple. Strategic buyers, such as large technology companies, may pay more than financial buyers because they expect synergies: selling the product to their own customers, cutting duplicate costs or blocking a competitor. Private equity buyers of mature software companies tend to focus on EBITDA and cash flow, and pay lower revenue multiples for slower-growing businesses. In 2026, Bending Spoons agreed to buy Airtable at about 2.7 times ARR, a reminder that slower-growing companies can sell for far less than their peak private valuations.

Growth-adjusted multiples

To compare companies growing at different rates, some analysts divide the revenue multiple by the growth rate. A company trading at 20 times revenue and growing 50% would have a growth-adjusted multiple of 0.4; one trading at 8 times and growing 10% would be at 0.8, meaning it is more expensive relative to its growth. The measure is crude, because growth rarely stays constant, but it helps flag companies whose valuations look stretched compared with peers.

What a falling multiple means

A company's multiple usually falls as it matures, even if the company is doing well. Growth naturally slows as revenue gets larger, and investors pay less per dollar of revenue for slower growth. That's why companies that raised at very high multiples during booms often need years of growth to "grow into" their valuations. Notion, Gusto and Mirakl are examples in our database of companies whose later valuations were close to, or below, their 2021 peaks despite much higher revenue.

Understanding this pattern helps founders set realistic expectations when raising money in strong markets.

It also helps employees judge the value of their equity realistically, rather than assuming a peak valuation will hold.