Quick and Dirty SaaS valuation

I have recently been doing a bit of research on valuing SaaS companies and have found that the traditional NPV valuations that most like to use for this are really a bit outdated and don't work that well for pre revenue companies. Here's why.

NPV is calculated as a discounted amount of the "projected" revenue for the company over the next _ years. When you are pre revenue or early revenue you really don't have enough data to accurately predict this to a point that discounted NPV is even a useful measure. We try to adjust the safety factor for investment by increasing the discount rate which we set arbitrarily where we feel. So really the discounted NPV valuation is nothing more than a stab in the dark.

Here's what I say. If we are going to just stab in the dark about future discounted cash generation lets just come up with an easier metric for it that takes less work so we don't waste people's time. In talking with others about this one person sent me a doc that outlined this"rules of thumb" for valuing companies in this stage. NOW THIS IS WHAT I'M TALKING ABOUT. Here is the idea.

Value your company in $500K chunks for each of these factors.

• Sound idea
• Working Prototype 
• Quality Management Team 
• Quality Board 
• Any sales 

Simple and effective. So if you have a company that is just an idea stage you get a score of $500K. If you have an idea, a good board, and a working prototype you score $1.5 MM. So the most you can score on this is $2.5MM which is about the most an Angel investor would ever give you at that stage anyway.

I love this idea and how easy it is to get a rough idea of the value of a company quickly. I have heard many others but this one is a nice simple logical approach to a quick valuation. So value your company quickly and then get back to work on what's most important. Driving revenue and profitability.