As we transition into an age where technology companies, particularly those in the SaaS space, are reshaping economies and business models, the discourse around company valuations has never been more pertinent. While the numbers can tell a story, the narrative is more intricate and nuanced than what may appear at face value.

**Valuation is Just One Aspect**

For a VC investor, the valuation of a company serves as a guide, but it's not the only metric to consider. Investing in mobility companies, or any sector for that matter, requires a deep dive into the strategic fit of the company in your portfolio. Moreover, the synergy and chemistry with the founders play an undeniable role. A shared vision and an aligned corporate plan lay the foundation for future growth and success.

**Benchmarking with Public Companies: Useful or Redundant?**

It's tempting to benchmark a private SaaS company’s performance against its public counterparts. However, the colossal scale of public companies often renders this comparison moot. Private companies are unique entities, with their own challenges and growth trajectories. Their performance insights cannot be directly extracted from a public company comparison in our view.

**The Current Landscape: Key Takeaways from SaaS Capital's Research**

The growth trajectory of private B2B SaaS companies, as revealed by  a recent SaaS Capital survey, indicates a median growth rate of 35.0%. It’s crucial to note the drop from 40.0% in 2021, suggesting a stabilization trend post the pandemic upheavals of 2020. Bootstrapped companies have shown resilience with a growth rate of 32%, a rise from the previous year. In contrast, equity-backed companies have experienced a dip from 45% to 35%. This divergence warrants attention and deeper exploration.

**Net Revenue Retention (NRR) - A Strong Predictor**

The data from SaaS Capital has underscored the relationship between NRR and growth rate. A shift in NRR from the 90%-100% range to 100%-110% can escalate growth rates by 9 percentage points. Hence, NRR becomes an influential metric for investors to consider.

**The Significance of Annual Contract Value (ACV)**

The absence of correlation between ACV and growth rates is intriguing. However, companies amplifying their ACV are witnessing better growth, reinforcing the notion that revenue augmentation through price hikes and account expansion is a robust strategy.

**Insights from the Field: Contributions from Mark to Market**

Doug Lawson, a close associate and the founder of MarktoMarket, provides valuable insights with recent data: -

M&A Activity: The M&A landscape has shown fluctuating volumes over the past year, with a noted decrease in transactions from 2021 (and, to a lesser extent, 2022) heightened levels, albeit when you look at the data from 2019, current levels across the board are on a reasonable trend line in a normalised market.

Valuation Metrics: EV/EBITDA multiples in sub-£250m deals have experienced a compression, dropping to 6.4x in the current year, which may indicate a shift in market sentiment or a recalibration of growth expectations. When you dig into the Mark to Market data, smaller deals have been more stable at 4.4x with the more material contraction at the "mid cap" (£50-250 million EV) end of the market, where activity becomes more private equity dominated and, by extension, dependent on an element of debt.

Seed Stage Valuation Pre-money valuations for Seed rounds have displayed a steady yet cautious upward trend, underscoring investor confidence in early-stage ventures. We suspect this has been driven by VC appetite for AI start-ups.  In the equity fundraising environment, there are also regional variances with transactions in the North of England and Scotland completed at a discount to London and the South East across all stages (Pre-Seed to Series B+).

Conclusion The world of private company valuations is intricate, offering both challenges and opportunities for investors. While numbers, growth rates, and benchmarks provide valuable insights, it's a deeper understanding of strategic fit and synergy with founders that can truly determine the success of an investment. As the SaaS and AI landscape continues to evolve, staying attuned to these nuances will be the key for investors to make informed decisions.

Have a great week.