Valuation is a Terrible Scorecard
5/24/25 Benchmarks for Operators
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We’ve all seen it.
The unicorn headlines.
The $100M raise at a $2B valuation.
The Slack high-fives and the LinkedIn humblebrags.
If you’ve been around for a few cycles, you start to see the pattern. You start to realize something: valuation is a terrible way to measure progress.
At best, it’s a milestone. At worst, it’s a trap.
When you raise at a $2B valuation while doing $100M in revenue, the narrative shifts. It’s no longer about building a good company. It becomes about justifying a number. You’ve brought in new investors who need you to get from $2B to $6B, $8B, maybe more, just to deliver the return they underwrote. That pressure sits on your cap table. It leaks into every conversation about headcount, burn, and runway.
Deals get priced to perfection. But most businesses aren’t perfect. There’s always some stumbling. A missed forecast. A pullback in the market. An unexpected churn event. And once your valuation gets ahead of your fundamentals, everything becomes about catching up.
Meanwhile, the team is looking at their equity grants and trying to do their own back of the envelope of what it’s all actually worth.
Here’s where it gets personal.
High valuations sound good in the recruiting pitch. You hear “we’re a $3B company” and think, wow, that must mean massive upside. But in reality, that upside may already be priced in. You’re coming in at a higher strike price. The 409A is anchored to the last round. Your options are less about potential and more about execution risk.
And then there’s dilution. The silent killer.
Employees see a $8B headline and think they’ve 4x’d their stake. But after a few more rounds, each shaving off 15 to 20 percent, the real return might only be 1.5x. That’s before taxes, before the exercise cost, and assuming there’s actually an exit.
Startup equity isn’t free money. It’s a bet. And most people don’t understand the terms of that bet until it’s too late.
How much dilution is "normal"?
Dilution is one of the most misunderstood concepts in startup land. But many employees are afraid to ask for a simple explanation.
Founders feel the trap too. A high valuation can open doors, attract talent, and create buzz. But it locks you into a different game. Now you’re not just building a business, you’re chasing a number. And if you don’t hit that number, even a strong outcome can feel like a letdown.
A $300M exit might be life-changing. But if you raised at $2B, it doesn’t come close to clearing the bar (or pref stack). Now employees feel underwater, and the market treats your success like failure.
This isn’t a knock on ambition. If you want to go big, go big. That’s what venture capital is for. But just know the game you’re signing up for.
Not every company is meant to be a rocket ship. Some are meant to be profitable, durable, and founder-controlled. Some can get to breakeven on $10M of capital and compound from there. You won’t get a press cycle for that, but you might sleep better at night.
So what should you measure?
Not your last valuation.
Not the TechCrunch headline.
Not how your company shows up on LinkedIn.
Measure your…
Efficiency.
Retention.
Progress toward breakeven.
How much of your equity is likely to actually pay out.
That’s what matters.
So here’s to the operators who’ve seen behind the curtain. Who’ve modeled the dilution. Who’ve explained option repricing three times in an all-hands. Who’ve helped build great companies that didn’t always have great press.
Valuation isn’t your scoreboard. It’s a datapoint in the story.
The real scoreboard is the outcome for everyone on the cap table. If you’re not building toward that, you’re just playing a different game.
Play with your eyes open.
OK, now forget everything I just said and check out the valuation metrics I update each week below.
Apple | Spotify | YouTube
Here’s a podcast I did with Mohit Daswani, the current CFO of Simple Practice, former Payments CFO at PayPal, former Head of Finance and Strategy at Square, and former CFO at ThoughtSpot (he’s wicked smaht.) We spoke at length about the dangers of using valuation as a scorecard, and the state of the PE vs VC equation.
TL;DR: Multiples are UP week-over-week.
Top 10 Medians:
EV / NTM Revenue = 15.0x (UP 0.2x w/w)
CAC Payback = 30 months
Rule of 40 = 50%
Revenue per Employee = $405k
Data source: Koyfin
Figures for each index are measured at the Median
Median and Top 10 Median are measured across the entire data set, where n = 111
Population Sizes:
Security: 18
Database and Infra: 14
Backoffice: 16
Marcom: 16
Marketplace: 15
Fintech: 16
Vertical SaaS: 16
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 Benchmarks
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.
Operating Expenditures
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.