What Investing at 100x ARR Really Means
4/13/25 Benchmarks for Operators
Why does half the software built for CFOs look like it was designed in 2003… by someone who hates joy?
Finance teams deserve better.
Mercury gets it. They built a banking* experience that’s actually enjoyable (speaking as a customer here). It’s clean. It’s powerful. It works.
Not only does Mercury offer banking* — it also offers financial software with smart workflows, tactical tools, and useful templates.
Speaking of templates…
Mercury’s own CFO, Daniel Kang, is sharing his personal forecast model — the one he’s used to raise capital, update the board, and guide ops.
Whether you’re prepping for a fundraise, revising plans, or just making sense of the madness, this model will help you align your team, clarify goals, and communicate with confidence.
*Mercury is a financial technology company, not a bank. Banking services provided through Choice Financial Group, Column N.A., and Evolve Bank & Trust; Members FDIC.
Ahhhh, the 100x ARR deal—our favorite fever dream. We are so back.
Over the past month, I’ve seen multiple AI startups raise at this mythical valuation. It’s giving strong 2021 vibes.
But here’s a reality check: what does investing (and raising) at 100x ARR really mean?
It’s not just an investor problem. Operators are signing up for a potential no-win scenario. Let’s revisit some back of the envelope math my friend Sebastian Duesterhoeft of Lightspeed drew for me back in 2022:
If we assume that, at scale, premium public companies trade at ~10x revenue…
To 3x your investment? You need the company to grow to $400M ARR.
For a 5x? Closer to $700M.
And to hit the 10 bagger VCs would really love? From an entry point at $10M in ARR… you need to scale past $1.3 billion in revenue.
A raise like this bakes perfection into your growth plan.
So operators, ask yourself: are you really building the next $1.3B revenue machine? How confident are you? It means 133x-ing from $10M.
Let’s calibrate:
Rubrik just hit $1B ARR.
Reddit pulled in ~$1.3B revenue in 2024.
Confluent and CyberArk? Right around $1B.
So… can you be one of those?
Because here’s the kicker: It would really suck to build a generational company… and still be seen as a disappointment. Especially if no one (founders or investors) gets paid what they thought they were signing up for.
Everyone is seeking a risk-adjusted return on their time and capital. A 100x ARR deal isn’t a bet—it’s a bind. One that most operators won’t be able to grow their way out of.
Hold up! A quick public service announcement before we get to the weekly multiples…
How is AI Impacting Pricing?
Not all revenue is created equal. And not all pricing models are built to last.
For years, B2B SaaS defaulted to the seat-based subscription. Easy to sell. Easy to forecast. Easy to explain to a board full of ex-Excel jockeys.
But the model is starting to crack under the weight of AI, automation, and APIs. Why charge per user when the value is increasingly tied to usage, outputs, or outcomes?
Companies are toying with usage-based pricing. Token systems. Success fees. Even Frankenstein hybrids duct-taped together in the name of revenue expansion.
But tinkering isn’t the same as adopting. And exploring a new model doesn’t mean customers will embrace it.
That’s why I’m sharing Kyle Poyar's State of Monetization survey. It’s 5–10 minutes. Anon. And aimed at figuring out what pricing shifts are actually happening behind the scenes.
TL;DR: Multiples are UP week-over-week.
Top 10 Medians:
EV / NTM Revenue = 13.5x (UP 0.9x w/w)
CAC Payback = 30 months
Rule of 40 = 52%
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.
Should have put more into the Reddit ipo… 😅 great data as usual!