On April 9th, I moderated “Buy, Sell, Hold: What Survives the AI Era?” at the Abacum Summit.
We tackled a simple question: What parts of finance are actually worth keeping — and what needs to go?
Alongside Chris Brubaker (Postscript), Fraser Hopper (PostHog) and Tania Secor (Stamford Health), we turned it into a live, audience-voted debate on what modern finance teams should buy into, sell off or hold on to as AI reshapes the function.
If you couldn’t make it to Gotham Hall, the full session is now available on demand.
San Francisco Reader Happy Hour
I’d like to buy you a beer if you live in the Bay Area on Thursday May, 14th.
Come hang with fellow Mostly Metrics readers.
I’ll be telling my favorite renewal rate jokes and I’ve asked the bar to play an eclectic mix of 80’s Joel and deep cuts from Creed’s second album.
Can’t wait to meet you IRL.
SBC Discourse is BACK…Wohooo!
Whenever the tide starts to go out and revenue multiples compress to disgusting levels, the SBC boo birds come out.
We remind ourselves that dilution is bad if you aren’t growing fast enough to outrun the brain damage you’re inflicting on your cap table.
As a quick refresher:
Most companies (especially tech companies) give out shares to incentivize employees
They come in the form of ISOs, RSUs, etc.
And equity is a non-cash expense, meaning it shows up on the P&L as a cost you are required to book (as OPEX within each department)… but no cash leaves the bank account (like when you pay for rent or payroll).
However, it does show up on the cap table, which dilutes (makes less valuable) the shares everyone else holds, because they get a smaller piece of the earnings pie (real or theoretical) which is what all companies are valued upon
Therefore, it’s become normal (but not right) to add back any SBC expenses and report profitability, rule of 40, and efficiency metrics SANS the cratering employee comp (despite it making up increasing amounts of how we pay people)
Net net: So we have always known (but kinda ignored) that SBC is a real thing, because we believed in the long term forecasts of companies to make it irrelevant down the road.
Why it’s coming back up?
Software multiples are at a ten year low (median is trading at only 3x forward revenue)
AI is threatening the traditional moats we hung our hats on (like, you know, producing software)
Growth at many companies is slowing (while not meaningfully, cracks are starting to show in the retention metrics)
Source: Platform Aeronaut
It’s hard to get these numbers at scale, btw. Every management team has their preferred framing… Some use forward dilution, some trailing, some SBC as a percent of revenue. And they scatter this shit across a littany of filings. in fact, the conspiracy theorist would say they make it hard on purpose. Luckily we have Platform Aeronaut to create a single source of truth.
Source: Platform Aeronaut
For tech companies above, say, half a billion dollars in revenue or five billion in market cap, run rate dilution should be low single digits. The best and most mature companies dilute less than 1% each year (world class for companies less - like a Costco is 30 BPS (.3%) but then again that’s super mature and last time I checked they have a great deal on hotdog + soda but are not building a world beating LLM).
Theoretically, SBC should go down as your market cap goes up. The ones circled below are not doing well on that scale.
Source: Platform Aeronaut
Here’s the line of best fit again:
Source: Platform Aeronaut
And so we’ve had this argument come up many times in the past. 2008, 2020, 2024. But 2026 comes comes with some caveats.
First: Employees at larger companies very much now think of SBC as a cash bonus, even if companies don’t think of it as a cash expense (where’s my money? - Teddy KGB from Rounder’s voice)
“The uncomfortable truth is that RSUs have always been a cash equivalent. Employees understand this intuitively — they sell on vest, consistently, and budget their RSU income the same way they budget their salary. When a company grants an employee $200,000 in RSUs, that employee expects $200,000 in real, spendable dollars. There is little ownership mentality or long-term alignment baked into the instrument. It is compensation that happens to route through a brokerage account.”
And what happens if you don’t get that cash bonus?
“For employees, this means vesting tranches worth a fraction of what they expected when they accepted their offer letters or negotiated their last refresh. And because they've always treated RSUs as cash, they don't experience this as an investment that didn't pan out. They experience it as a pay cut.”
Second: The way we value companies shifted to the upcoming years’ FCF instead of the chunkaaaay end state terminal value
Third: Revenue growth cures a lot of sins. Like all of them. And the SBC looks even higher if the current and forecasted growth rates are falling, making the SBC numbers you smash the revenue numbers up against look higher than before
“SBC (stock-based compensation) is not the root cause of the selloff in software — it's slowing revenue growth as AI threatens the core value proposition of sticky, recurring revenue and ever-growing absolute free cash flow.”
From the operator’s perspective you’re in a catch 22:
You can:
Grant EVEN MORE shares to attract the best talent
And just to keep current employees from walking to competitors who do give nice RSU packages. Or…
Get strict on how many shares you give out to right size the metrics and get to actual, real profitability
But you risk losing talent… the people who make up said business… who ultimately drive your enterprise value
It’s all connected…
“The pattern is clear: the best-performing software companies used equity aggressively to attract top talent and fund growth, while the most capital-conservative companies delivered the weakest returns.
Even during the 2022–2023 rate-hike correction — the most hostile environment for growth stocks in a decade — growth metrics only lost to FCF and SBC metrics in 3 consecutive quarters before reasserting dominance.”
And for many of us, we don’t build anything you can touch. We run extremely capital light businesses. In that sense, it’s more akin to consulting, where people are the model, rather than manufacturing, where you have drill bits and soup cans.
I remember speaking to a partner at a consulting firm once who said:
“Both the beauty and the horror of my business model is my most valuable assets leave the building in the elevator each evening.”
For Private Companies
How do I translate this to the micro of my company, which is not public (and maybe even under $25M in revenue)?
Public company SBC shows up on the P&L every quarter, right in your face. Private company dilution only shows up at the round, which is why nobody watches it the other 22 months of the year. Technically you're still booking SBC expense under ASC 718. But the adjusted metrics your board cares about strip it out, and there's no public filing forcing the issue.
So it hides.
Let's go for a walk:
Here's the average dilution you take for each round. This is the number everyone quotes when they talk about fundraising.
Within those numbers, here's the amount that goes to topping up the ESOP so you can keep hiring. At seed and Series A, the pool top-up is typically 25–50% of round dilution (and it comes out of the pre-money, meaning founders and existing investors pay for it, not the new money coming in). That share compresses as you move later stage, but it never goes to zero.
So 25% to 50% of your round dilution isn't capital. It's hiring.
Now add the refreshes. Most growth-stage companies burn through another 2–3% of the cap table per year on new-hire grants and refreshes between rounds. Over an 18-month gap, that's 3–5% of additional dilution nobody put on a term sheet. Stack it on the pool top-up and you've got close to round-sized dilution happening silently, between the events you actually track.
Hiring is a second, hidden dilution cycle that rivals investor rounds. And we don't include it in any of our metrics lol.
So should we cancel SaaS metrics?
The greatest trick the devil ever played was giving us SaaS metrics that we could adjust. Gaap metrics suck but they’re also, like, consistent.
The bigger problem is not how we look at the numbers but how we actually feel about our underlying business models:
Giving away part of your company every year for businesses that have a bright future is a no brainer bet. Doing it for ones where you're squeezing the last ounce of blood from the stone out is bad business.
You're probably going to need to start reporting some of this stuff on a true GAAP basis. Your plans for profitability should take SBC into consideration for the near future. Best to model it out before your investors do, and before you build a headcount plan that calls for a stock outlay that doesn't square with your medium-term profitability goals.
TBH I've worked at many private companies where cap table forecasting for new hires was an afterthought before the board meeting. We knew it would get approved because we were growing at a healthy clip and incentives were aligned.
We'd spend weeks modeling revenue attach rates and OPEX and ensuring GM was in line. Then 48 hours before the board meeting, swizzle up a dilution forecast and double check we had enough left in the ESOP.
In hindsight that wasn't responsible.
Finance leaders at private companies are in for more questions when they bring the equity compensation plan to the board in coming quarters. They're also going to need to check their footnotes on what's included and excluded.
brace yourself. footnote changes are coming.
TL;DR: Median Multiples are UP week over week.
The overall tech median is 3.2x (UP 0.3x w/w).
What Great Looks Like - Top 10 Medians:
EV / NTM Revenue = 14.8x (UP 0.7x w/w)
CAC Payback = 23 months
Rule of 40 = 49%
Revenue per Employee = $646k
Figures for each index are measured at the Median
Median and Top 10 Median are measured across the entire data set, where n = 144
Recent changes
Added: Navan, Bullish, Figure, Gemini, Stubhub, Klarna, Figma
Removed: Jamf, OneStream, Olo, Couchbase, Dayforce, Vimeo
Population Sizes:
Security & Identity = 17
Data Infrastructure & Dev Tools = 13
Cloud Platforms & Infra = 15
Horizontal SaaS & Back office = 17
GTM (MarTech & SalesTech) = 18
Marketplaces & Consumer Platforms = 18
FinTech & Payments = 28
Vertical SaaS = 17
Revenue Multiples
Revenue multiples are a shortcut to compare valuations across the technology landscape, where companies may not yet be profitable. The most standard timeframe for revenue multiple comparison is on a “Next Twelve Months” (NTM Revenue) basis.
NTM is a generous cut, as it gives a company “credit” for a full “rolling” future year. It also puts all companies on equal footing, regardless of their fiscal year end and quarterly seasonality.
However, not all technology sectors or monetization strategies receive the same “credit” on their forward revenue, which operators should be aware of when they create comp sets for their own companies. That is why I break them out as separate “indexes”.
Reasons may include:
Recurring mix of revenue
Stickiness of revenue
Average contract size
Cost of revenue delivery
Criticality of solution
Total Addressable Market potential
From a macro perspective, multiples trend higher in low interest environments, and vice versa.
Multiples shown are calculated by taking the Enterprise Value / NTM revenue.
Enterprise Value is calculated as: Market Capitalization + Total Debt - Cash
Market Cap fluctuates with share price day to day, while Total Debt and Cash are taken from the most recent quarterly financial statements available. That’s why we share this report each week - to keep up with changes in the stock market, and to update for quarterly earnings reports when they drop.
Historically, a 10x NTM Revenue multiple has been viewed as a “premium” valuation reserved for the best of the best companies.
Efficiency
Companies that can do more with less tend to earn higher valuations.
Three of the most common and consistently publicly available metrics to measure efficiency include:
CAC Payback Period: How many months does it take to recoup the cost of acquiring a customer?
CAC Payback Period is measured as Sales and Marketing costs divided by Revenue Additions, and adjusted by Gross Margin.
Here’s how I do it:
Sales and Marketing costs are measured on a TTM basis, but lagged by one quarter (so you skip a quarter, then sum the trailing four quarters of costs). This timeframe smooths for seasonality and recognizes the lead time required to generate pipeline.
Revenue is measured as the year-on-year change in the most recent quarter’s sales (so for Q2 of 2024 you’d subtract out Q2 of 2023’s revenue to get the increase), and then multiplied by four to arrive at an annualized revenue increase (e.g., ARR Additions).
Gross margin is taken as a % from the most recent quarter (e.g., 82%) to represent the current cost to serve a customer
Revenue per Employee: On a per head basis, how much in sales does the company generate each year? The rule of thumb is public companies should be doing north of $450k per employee at scale. This is simple division. And I believe it cuts through all the noise - there’s nowhere to hide.
Revenue per Employee is calculated as: (TTM Revenue / Total Current Employees)
Rule of 40: How does a company balance topline growth with bottom line efficiency? It’s the sum of the company’s revenue growth rate and EBITDA Margin. Netting the two should get you above 40 to pass the test.
Rule of 40 is calculated as: TTM Revenue Growth % + TTM Adjusted EBITDA Margin %
A few other notes on efficiency metrics:
Net Dollar Retention is another great measure of efficiency, but many companies have stopped quoting it as an exact number, choosing instead to disclose if it’s above or below a threshold once a year. It’s also uncommon for some types of companies, like marketplaces, to report it at all.
Most public companies don’t report net new ARR, and not all revenue is “recurring”, so I’m doing my best to approximate using changes in reported GAAP revenue. I admit this is a “stricter” view, as it is measuring change in net revenue.
OPEX
Decreasing your OPEX relative to revenue demonstrates Operating Leverage, and leaves more dollars to drop to the bottom line, as companies strive to achieve +25% profitability at scale.
The most common buckets companies put their operating costs into are:
Cost of Goods Sold: Customer Support employees, infrastructure to host your business in the cloud, API tolls, and banking fees if you are a FinTech.
Sales & Marketing: Sales and Marketing employees, advertising spend, demand gen spend, events, conferences, tools.
Research & Development: Product and Engineering employees, development expenses, tools.
General & Administrative: Finance, HR, and IT employees… and everything else. Or as I like to call myself “Strategic Backoffice Overhead.”
All of these are taken on a Gaap basis and therefore INCLUDE stock based comp, a non cash expense.
Please check out our data partner, Koyfin. It’s dope.
Wishing you trade at a high revenue and EBITDA multiple,
CJ
