---
title: "The Leading Predictor of Series A Valuation for SaaS Companies"
description: "Discover why negative churn, not revenue, is the #1 predictor of Series A valuations for SaaS startups. Data shows 0.54 R^2 correlation vs 0.3 for revenue."
categories: ["fundraising"]
keywords: ["Theory Ventures","Tomasz Tunguz","Series A valuation","SaaS startups","negative churn","venture capital","customer success","account expansion","post-money valuation","revenue growth"]
ai_summary: "Negative churn is the top predictor of Series A valuations for SaaS companies, outperforming revenue metrics significantly."
date: 2016-05-12
lastmod: 2026-07-28
canonical_url: https://www.tomtunguz.com/leading-predictor-saas-series-a-valuation/
author: "Tomasz Tunguz"
---

<a href="https://res.cloudinary.com/dzawgnnlr/image/upload/q_auto/f_auto/w_auto/correlates_to_post_series_a.png">![image](https://res.cloudinary.com/dzawgnnlr/image/upload/q_auto/f_auto/w_auto/correlates_to_post_series_a.png)</a>

The highest correlated factor to post-money valuations for Series A SaaS companies isn't revenue or revenue growth, but negative churn. Revenue growth correlates to post-money with a 0.18 R^2. Revenue correlates at 0.3 R^2. Negative churn, or account expansion, correlates at 0.54 R^2. 

Initially, I found that result astounding, because all of the public market research and valuation work focuses instead of multiples of revenue. But the more I reflected on it, the more logical it is, especially for an early stage company. Here's why: 

4. Account expansion demonstrates initial product market fit. Customers are buying more of the product they trialled. 
1. Account expansion meaningfully reduces the [amount of a capital](http://tomtunguz.com/balancing-sales-velocity-customer-success/) a startup needs to grow. 
2. Customer success reduces [customer acquisition costs](http://tomtunguz.com/customer-success-cac/) by fueling word of mouth. 
3. Customer success increases or at least stabilizes the market size, because a business isn't [burning through customers](http://tomtunguz.com/churn/). 
4. At some point in the not too distant future, new bookings from [customer success will exceed](http://tomtunguz.com/renewals_percent_rev/) new bookings from the sales team. 
5. If a product satisfies a small group of customers so well that they continue to increase their spend, investors won't be challenged to believe that there lies a large market of similar customers who will behave identically. 

The data underscores why building a great product is the first order of business for a startup and why developing great customer success should be the second order of business. Many founders do this instinctively, and develop a cadre of reference customers. 

If you needed one more reason to develop a product, pricing plan and go-to-market with negative net churn, here it is. It's the best predictor of your valuation when you raise your Series A.