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2 minute read / Sep 21, 2016 /

Are SMB SaaS Companies Valued Differently than Mid-Market SaaS Businesses?

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Recently, we examined the comparative efficiency of bottoms-up and top-down businesses. Today, we’ll dig into valuation metrics to see if there’s any systematic bias in the investor community for SMB, Mid-Market and Enterprise SaaS companies.

Using public data, I categorized the 50 or so public companies by ACV at IPO. SMB is less than $10k, Mid-Market is between $10k and $100k, and Enterprise is greater than $100k in average customer value.

The data indicates that SMB companies trade on average at 8.1x trailing revenues, Mid-Market at 5.9x, and Enterprise companies at 6.5x. The difference between the Mid-Market and SMB figures are statistically significant at an R^2 of 0.09, but none of the other figures are statistically different.

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The Enterprise data set includes 9 companies so the sample size isn’t large enough there to overcome an interesting dynamic of the enterprise market: the bi-modal distribution. There are three Enterprise businesses trading at premium multiples of around 10x trailing, but also 3 that trade at below 3x trailing.

In the SMB and Mid-Market, there’s quite a bit of variance. The SMB market multiples more consistently higher than Mid-Market, echoing the first chart.

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So, are Mid-Market companies consistently considered less valuable businesses? No.

The biggest SaaS companies are Mid-Market companies. The chart above shows the distribution of the sample by revenue, and I’m excluding two of the largest SaaS companies as outliers because they skew the chart.

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These enormous businesses can’t sustain the same growth rates as their smaller revenue peers in both SMB and Enterprise, and so they receive a slightly smaller multiple.

Overall, there is no meaningful difference in valuation by customer size. A SaaS startup at scale is going to be valued by its growth, market size, and long term prospects, irrespective of how many customers of what size it acquires.


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