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Being an entrepreneur doesn't require any qualifications or credentials, and for a good reason: groundbreaking solutions and ideas thrive on ingenuity, not conventional thought. For this reason, most entrepreneurs are operators who have backgrounds in engineering or marketing. They have spent years building and selling, working with and talking to actual customers, their nose to the grindstone.
While this dynamic is positive for creating new products and companies, the lack of financial experience can put startup founders at a disadvantage to financially-savvy investors. Ultimately, this power imbalance heavily favours investors over entrepreneurs, who may have scant resources to build a team, let alone a CFO, to help them understand how to position their company and develop an argument for its valuation.
Thankfully, entrepreneurs without financial experience can level the playing field. Our SaaS Metrics Valuation Benchmarking Template is designed to help founders compare their SaaS business to benchmarked data from more than 200 privately-funded SaaS companies, creating a robust valuation analysis in less than five minutes.
Many pre-Series A founders who lack sophisticated finance expertise miscalculate their companys' value. This can lead to a more difficult negotiation that ends with precious funds left on the table, or worse, the founder giving up more of the company than is necessary.
Focusing on the wrong performance metrics can also give founders a skewed perception about what actions they should take to impact the company's perception among investors. This inevitably leads to startups doubling down on KPIs that aren't going to increase the company's valuation, and in addition, founders are also left exposed during investor conversations.
Our SaaS Metrics Valuation Benchmarking Template is the fix, giving entrepreneurs a high-level overview of their business' performance, along with an apples-to-apples comparison against companies in varying levels of growth.
We've designed gini's SaaS Financial Model Template to be simple and easy to navigate. After entering a handful of easily-retrieved business details—like expenses, customer count, and revenue—owners get a readout of their company's performance across these seven commonly used SaaS valuation metrics:
Relative performance across each metric will be compared against Bessemer Venture Partners' portfolio companies, whose performance were used in our correlational analysis. Results are divided into four groups; top quartile, bottom quartile, middle 50 percent, and average. Embedded hyperlinks about every metric and financial term used in the template will take users to a complete metric glossary with clear and concise explanations. That way, no one has to pretend to know what net dollar retention, CAC payback period, or ARR growth rate really mean.
With gini's SaaS metrics benchmark tool, entice potential investors with any upper-quartile performance, or increase valuation by smoothing out any bottom-quartile metrics with improvements that explicitly address them.
Our SaaS benchmark analysis is based on the correlation between each company's valuation versus their performance across the previously-cited metrics.
Under the hood, the SaaS metrics benchmark's correlational model achieves an r-squared of 0.7—a unit of measure for a model's relative quality and reliability—meaning it predicts changes in one variable for variances in another 70 percent of the time. As a point of comparison, natural science research requires an r-squared of at least 0.6. If a company lands in the top quartile across multiple metrics, they are highly likely to land in the top valuation quartile as well—though some discretion is advisable.
We've additionally made these insights as accessible as possible. Input data from Stripe, Quickbooks, or Xero and quickly translate all results to a slick pitch deck in less than thirty seconds.
Finally, we understood from the start that any data provided to investors needed to be credible as well as accurate. As a Google Sheet, the template is effectively open source. Any questions on methods and sources can be answered by digging deeper into the exposed logic.
Calculating a company's valuation is a great way to learn the basics of how investors compare SaaS companies. Not only does this prepare owners to convey their organisation's strengths, but they're also learning a foundational lesson in finance. With gini's SaaS benchmarking tool, anyone can walk into their next investor meeting prepared with a valuation, backed up with compelling evidence, all without a CFO.
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