Free cap table template for CFOs who like to plan ahead
Even the cleanest spreadsheet can hit its limits. This free cap table template by Fidelity Private Shares can help early-stage teams track equity clearly and correctly, while setting the stage for a seamless transition to a more scalable solution when needed.
Pre-formatted for equity events (ex: SAFEs, options, dilution)
Audit-friendly and investor-ready structure
Fully editable, built for early-stage use
Easy migration to the Fidelity Private Shares (FPS) platform when you’re ready to scale
NYC Reader Happy Hour - Wednesday April 8th
Yo, it's CJ! I’m hosting a happy hour in NYC. Come hang with fellow Mostly Metrics readers on Wednesday April 8th.
I’ll be telling my favorite CAC Payback knock knock jokes.
RSVP below. It’s at an undisclosed location guarded by my ferocious Berne doodle Walter.
Really pumped to meet you IRL
Where were YOU when the revenue multiples died?
The day the music died
I write this from Disney World, attempting to not lose three kids under four.
I've truly never experienced such a hunger games scenario. Everything is a wait. Everything is overpriced. Every table is taken.
For the privilege of sitting at a red metal table to consume my $42 pizza on the Boardwalk, I practically mowed over a nice couple from Quebec.
Anyways…
In early Feb I wrote about the death of SaaS, and how rumors of our beloved business model's death are widely exaggerated.
I still think that's true. SaaS isn't dead.
But there's been a reckoning as it relates to who gets to trade at a revenue vs EBITDA multiple.
Now, I have to admit, I've been in more fundraising and exit scenarios where we were negotiating off revenue multiples. I've built my career at tech companies where we were usually, sometimes stupendously, incinerating money.
And sometimes I conveniently "forgot" that revenue multiples were meant to be a shorthand - a temporary stand-in for profitability multiples: turns of EBITDA, Adjusted EBITDA, Net Income, Free Cash Flow.
So who gets to decide what the conversation is anchored upon?
A quick crash course:
The starting point is the risk free rate - the return an investor can generate with no risk.
Traditionally we used the US 10 year treasury (fingers crossed we as a country are still a going concern in 10 years), where you can get 4% to 5%, depending on the month.
A rational investor wouldn't invest in anything that can't clear this hurdle.
Then you add the equity premium. If you assume the market yields an additional 4% to 5%, you arrive at ~9%.
So 1 divided by 9%, and you get 10x to 12x FCF as the rational price for a business whose cash flows are stable but not growing and face no existential threat.
The last part is key. There's a lot of existential threat right now.
Traditionally, revenue multiples were reserved for fast growing, high gross margin, high gross dollar retention companies that were not yet profitable.
The basic principle is the value of any business is the net present value of its future cash flows. The only reason investors pay ARR multiples for businesses that don't generate cash flow is because they believe strong margins are coming… eventually. When it stops making sense to keep pouring into the growth engine, you should be able to generate serious cash flow.
Gross margins matter here because they cap your long term EBITDA potential. A 50% GM business is going to suck eggs to hit 20%+ EBITDA margins. An 80-85% GM business can get there. You can't use revenue as a proxy for future cash flow without looking at the marginal cost to produce.
Without those beliefs, revenue multiples don't make sense.
And yet today, if you're sub 90% gross dollar retention (including down sell), you're unlikely to see an ARR multiple. It's a new world order since the SaaScre, or whatever cute moniker we're giving it (the Disney Hunger Games?). There's a lot of uncertainty around AI's ability to disrupt existing businesses, and how believable a forecast and its theoretical cash flows at the end of the rainbow actually are.
The problem is exacerbated the longer the uncertainty hangs around. The majority of a company's value sits in the terminal value — the chunky bucket after year 7 or 10. I'm talking like 80% of the value.
A friend who's a portfolio manager put it well. The challenge isn't just the terminal value question — it's that even your spot earnings are suspect. The market is saying: we don't care about your $10 today, because we think that might be $6 tomorrow. And god forbid you miss.
Case in point: PayPal. No net debt, kicking off $6B in FCF per year. Trading at just 6x EBITDA. Not financial advice. But also doesn’t really make sense?
I was also speaking to a growth stage investor this week. Most of his deals are businesses doing $10M to $30M in EBITDA. The goal is to improve operations and use M&A to get them to $50M or $150M in EBITDA over the next few years.
He told me:
"I do think that's a misconception I run into when talking to founders and management teams. I've def had that disconnect where someone looks at something and acts as if ARR multiples exist just because that's what people do."
He has to reframe the conversation:
"We'll pay that revenue multiple
because I think this business is going to be big
because it's growing really fast
because if and when I think it makes sense to optimize for profitability rather than growth, I can generate a lot of cash flow out of this thing."
He was speaking to a founder-owned company this week. The guy said he'd need at least 10x revenue to trade. They had 75% EBITDA margins (which, also, isn't bad work if you can get it).
The delta between 10x revenue and the implied EBITDA multiple in that context isn't very far off. He's essentially asking for 13.3x EBITDA. They're closer to interchangeable than not.
Unfortunately for many companies in tech, their multiples are not close to interchangeable.
Where do multiples sit today?
The median tech company is trading at 3.1x NTM Revenue and 12.3x NTM EBITDA. And many more are trading at “N/A”… there's no EBITDA number to divide by.
So the question becomes: what does that 10x to 12x rational baseline get discounted down to?
Does AI have a 1 in 10 chance of disrupting your business? A 1 in 3 chance of deleting the cash flows in your terminal value?
In a doomsday scenario, Claude going pre-Carter III Lil Wayne on every sector’s ass, dropping plugins like mixtapes, you can imagine EBITDA multiples falling from 10x-12x to 3x-4x. That's what happened with print media.
(The sound of 75,000 butts puckering)
Not only has the metric shifted from revenue to EBITDA. The baseline for that profit multiple moved too.
I don't think this happens immediately. It would reprice the market to a third or fourth of where it sits today. A lot of people would lose their shirts and undies. And it completely discounts the companies doing genuinely cool stuff to cause the disruption; if they're getting priced off small EBITDA multiples, there's no incentive to innovate.
But here we find ourselves. And I wish I could tell my past self:
"We had a good thing, you stupid son of a bitch. We had Fring. We had a lab. We had everything we needed and it all ran like clockwork. You could've shut your mouth, cooked, and made as much money as you ever needed. It was perfect."
We rode the revenue multiples until they played Wagon Wheel and the bar closed.
Maybe it opens again on Saturday. But until then, we need to learn how to order our drinks differently. And if you're going into a fundraising or exit conversation, figure out beforehand whether you're a revenue or EBITDA story. You don't want to be doing that division live, and being pissed at the results.
A lot of us are going to need to brush up on the adjustments we're allowed to make to EBITDA. Because apparently there’s a lot of stuff you can't add back.
TL;DR: Medan Multiples are FLAT week over week.
The overall tech median is 3.1x (FLAT w/w).
What Great Looks Like - Top 10 Medians:
EV / NTM Revenue = 13.5x (FLAT w/w)
CAC Payback = 25months
Rule of 40 = 50%
Revenue per Employee = $625k
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
