--- title: "How SaaS Companies are Valued" description: "Learn how modern SaaS companies are valued using revenue multiples, enterprise value metrics, and market data. Key insights for startup founders and investors." categories: ["SaaS"] keywords: ["SaaS valuation","enterprise value","revenue multiples","Theory Ventures","Tomasz Tunguz","startup valuation","market capitalization","unicorn startups","EV/Rev multiple","SaaS companies"] ai_summary: "Explore how SaaS companies are valued through revenue multiples and enterprise value metrics, essential for founders and investors." date: 2018-08-30 lastmod: 2026-07-21 canonical_url: https://www.tomtunguz.com/valuing-saas-companies/ author: "Tomasz Tunguz" --- ![image](https://res.cloudinary.com/dzawgnnlr/image/upload/q_auto/f_auto/w_auto/Abacus.jpg) In a post earlier this week, I argued [1% of Salesforce's revenues creates a unicorn](http://tomtunguz.com/time-to-disrupt-incumbents/). More broadly, I said that the biggest SaaS companies are so large, that they must have underserved customer segments. And there is an opportunity for a startup to identify that underserved segment, build a product to serve it better, and build a unicorn. I received a lot of comments about this post, but not the kind that I expected. Many people wrote me to say that 1% of revenues does not equal 1% of market capitalization. In other words, even if start of were able to win over 1% of Salesforce's revenues, it would not equate to a $1B valuation. Also, one person accused of clickbaiting: writing an article with a misleading headline, which is something I try very hard not to do. Given that feedback, I thought it important to explain in more detail how SaaS companies are valued. In the public markets, SaaS companies are valued based on an enterprise-value-to-revenue multiple, or EV/Rev. To calculate the enterprise value, which is the market capitalization minus debt and cash on the balance sheet, you multiple the current revenue by this multiple. Salesforce's current EV/Rev multiple is 9.7x. Salesforce's trailing revenue is $11.8B. $11.8B of revenue x 9.7x EV/Rev ~= $114B in enterprise value, which is Salesforce's current enterprise value. That math works. If you were to start a competitor to Salesforce - and the financial profile of the business were roughly the same - that startup would fetch a similar multiple in the public markets. 1% of Salesforce's revenue is $118M. $118M at a 9.7x multiple = $1.144B in enterprise value. 1% of Salesforce's revenue would create a unicorn in the public market. In the private market, where multiples are higher, the value of the business would be greater. That's the math behind Monday's post.