For SaaS/PaaS startups, valuation is a combination of art and science. B2B SaaS uses financial metrics; B2C social companies are often valued on “eyeballs” — number of users.

Seed stage

Important factors:

• Product-market fit
• Founders’ credibility and team
• Market size, competition, and opportunity
• Revenue and cash flow projections

Financial metrics like NPV can be used. Example: Zenefits’ $2.1M seed round based on a great product idea, credible team, and big opportunity.

Growth stage

Financial metrics matter more here — customer count, growth rate, revenue growth, retention rate, churn rate. The crux: “Are they making more money than they are spending?” and “How much more?”

Software companies have higher margins; investors expect 5x–10x returns. High revenue does not mean profitability — check net profits.

CAC and LTV

Customer acquisition cost (CAC) and lifetime value (LTV) are crucial metrics. CAC recovery should ideally be less than a year. Uber and Lyft recover CAC in months.

Historical comparisons

Another way: analyzing historical data for similar companies — look at exits. But comparisons must be sensible (don’t compare DuckDuckGo to Google).

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All factors help value pragmatically, but sometimes investors must take a leap of faith. Founders are selling what the future might look like, not what currently exists.