I have been writing about how to value SaaS companies since 2008, working to demystify the process for founders and investors alike. The more I explore, the better I appreciate there is both a practical and theoretical side to the valuation process.

I have spent most of my time on the theoretical side, examining how things like growth, retention, margins, and interest rates impact SaaS valuations. Now, I’m spending more time on the practical side, focusing on buying and selling SaaS companies.  A big part of the practical side is comparing the company being sold to other companies like it. As with home buying, the process is designed to help you value the asset you’re trying to buy or sell. 

The problem is, that just doesn’t work.

Blending theory and practice

The theoretical side of the valuation process impacts the practical side and vice versa. Buyers build financial models incorporating the value drivers I mentioned above, and those models affect what they are willing to pay. But the relationship is sometimes less direct than you might think, and the practical side is full of outside influences. Is the VP of Corp-Dev new and looking to make a mark? Or are they going through a divorce? Or does the seller have gambling debts? Seriously, it’s real life.

My recommendation to SaaS founders has always been to understand the theoretical side as best you can and then optimize the practical side. 

Understanding the theoretical side means knowing your company’s value drivers (growth rate, retention, gross margin, CAC payback, cash burn, etc.) and how they compare to other companies. This knowledge allows you to best articulate your company’s value. On the practical side, optimizing means running a low-friction competitive process that reaches as many potential buyers as possible.

Private market comparable transactions

As I spend more time on the practical side of the equation, helping bring SaaS companies to market, I have been digging through the voluminous and expensive databases of private market transactions commonly known as running comps. As you may know, this involves evaluating a list of private M&A transactions for businesses similar to yours. 

The chart below shows the median valuation multiples of four hundred private software businesses with revenues less than one hundred million sold over the last two-plus years. There’s nothing wrong with the chart. It, just doesn’t tell you much.

Private Software Valuations, Q1 2021 - Q2 2023

Look at the underlying data, and you’ll see how unclear this picture is. Valuations are all over the place.

Public Software Valuations Scatter Chart

In each of the last ten quarters, at least one software company has sold for less than .1 times revenue and one for over 40 times revenue. Unfortunately, most private data doesn’t contain detailed operating metrics on the companies acquired, so it’s hard to know the differences between the ones that sold for 40 times vs .1 times. 

You can build a median from any data set, but it’s meaningless if the underlying distribution is too broad and the attributes of the data points are unknown. It’s like knowing the average home price in Cincinnati is $250,000. That’s not super helpful. You want to know the average price of a three-bedroom home with a new kitchen in a specific school district.

The data is further biased because each dot is an entirely different company. One quarter could be full of exceptional companies, while another could be full of duds, causing a change in valuation multiples that has nothing to do with market conditions and has no impact on your business.

All that said, what can we learn from the transactional data?

Psychologists and data scientists suggest humans are good at spotting patterns in large data groups, so rest your eyes on this chart again.

Public Software Valuations Scatter Chart

One thing is clear: there are fewer dots on the right than on the left. This indicates a slowdown in the number of transactions. From a seller’s perspective, that means lower demand, which might impact the price or even the likelihood of a completed transaction. It’s also clear that the number of transactions above 10X has virtually disappeared. That information is obfuscated in the chart, showing only the median values. The chances of a “frothy” exit have almost disappeared.

Beyond these limited observations, however, comps still aren’t good for much.

Evaluate your business using a public market approach

The public markets are a better place to start. Below, I’ve outlined a streamlined approach to valuing your SaaS company based on public data.

Begin by selecting a recent valuation multiple from a public benchmark that serves your needs best but is still defensible. Your choices include the Emerging Cloud Index, the SaaS Capital Index, or an index based on your specific SaaS segment. (See Saasonomics.com for a list of segments I put together.) Pick the one with the highest multiple.

Second, discount the valuation multiple by 25%. I looked up six studies on the long-term average discount of private companies to public companies, and the answers all fell between 20% and 30%. I would stick with 25%. It’s straightforward and entirely defensible.

Third, adjust the multiple for your growth rate. This is done by comparing your company’s growth rate to companies with a similar level of ARR (not public company growth rates). For every ten percentage points (not percent) your company is above or below the median growth rate for your ARR cohort, add or subtract 2.5 from your starting valuation multiple. The Maxio Institute has private growth rates by ARR.

The Growth State for B2B SaaS Businesses

We’ve analyzed the billing data of over 2,100 B2B SaaS companies between 2022 and 2023—download the report to learn what we found.

Fourth, adjust for profitability. This is less precise. Higher growth SaaS company valuations are not impacted much by profitability, so ignore profitability if your growth rate is above 30%. Even if you’re growing less quickly, ignore profitability if your operating profit margin is within ten percentage points of zero. If you have an operating profit margin in the 15% or above range, start adding to your multiple, and if your loss is 15% or more, start subtracting.

Finally, adjust for retention. Gross revenue retention is the driver and should be treated like profitability. Give yourself bonus points if you are five or more points above 90%, and subtract likewise in the opposite direction.

There are dozens of other factors that will impact your valuation. Still, they tend to be idiosyncratic or less important than those mentioned above. 

What this means

SaaS company founders and investors don’t need access to secret, proprietary data on comparable sales. It’s just not that useful. Accessible and timely public data can give you most of what you need to value your SaaS company. If you are selling your company or raising equity, use the valuation process above to hone your arguments for a higher value and establish a reasonable valuation range. Once that’s done, do your best to optimize the outcome by creating a low-friction competitive process.

About the Author

Todd Gardner is the Managing Director of SaaS Advisors and the founder and former CEO of SaaS Capital. Todd was also a partner in the venture capital firm Blue Chip Venture Company and was a management consultant with Deloitte. Todd has worked with hundreds of SaaS companies across various engagements, including pricing, capital formation, M&A, metrics, valuations, and content marketing. Todd is a graduate of DePauw University and Indiana University.

Todd was recently a guest on our Expert Voices podcast. He chatted with our CEO, Randy Wootton about the current state of the capital markets for SaaS companies and the recent deceleration in the growth rate of SaaS companies. Todd emphasizes the value of three key metrics for fundraising: growth, profitability, and retention.

Listen now →

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The State of SaaS Growth 2023

We’ve analyzed the billing data of over 2,100 B2B SaaS companies between 2022 and 2023 and have presented key insights, including:

  • Growth rates of businesses based on billing type
  • Where some of the fastest growing companies are located
  • The bar for raising your successive round of investment.

Download the report

Over the last 26 months, sixteen public SaaS companies have been taken private. Sixteen! 

What can we learn from the PE firms? Let’s look at the data.

My first observation is that while the PE firms were undoubtedly looking for value, that did not necessarily mean “cheap.” They paid, on average, 7.7 times ARR when acquiring a company, which was only about 1.7 times below the average ARR of public SaaS companies at the time of the acquisition. These data are consistent with the “flight to quality” that we have seen private market investors adopt. Private buyers are looking for undervalued SaaS companies, not low-value ones.

The growth profile of the companies taken private was about the same as the universe of public SaaS companies at 22%. Profits, however, are a different story. As a group, the companies targeted by PE firms were very unprofitable. Half of the companies had operating losses above 30%, with several running into the 60% loss range. Thoma Bravo, the most active buyer, acquired seven companies with an average operating loss of 36%. (This was substantially worse than the other public SaaS companies, which averaged losses of 20% over the same period and are now only losing 10%.)

The Growth State for B2B SaaS Businesses

We’ve analyzed the billing data of over 2,100 B2B SaaS companies between 2022 and 2023—download the report to learn what we found.

Referring back to my post a few weeks ago, Growth or Profit: It’s Time to Pick a Lane, all but one of the companies acquired by the PE firms were in the Dead Zone or Grey Zone. That means they were underperforming on the Rule of 40 and, generally speaking, the profit side of that equation. 

The point I made in the Pick a Lane post was that management teams running companies with a low Rule of 40 need to be intentional about pursuing growth or profit and stop trying to do both, at least initially. I lay out some objective measures to determine if growth is a viable strategy, and if not, driving profits must be the imperative. If you don’t do one or the other, someone will do it for you, and that’s what happened to these companies.

The SaaS businesses that were not gobbled up have received the message. The chart shows public SaaS companies’ substantial operating margin improvement over the last fourteen months. (To some degree helped by the underperformers being acquired.)

It’s likely the go-private wave is largely behind us. The remaining public SaaS companies are picked over at this point; debt is more expensive, and many of these companies cleaned up their profitability picture independently.

The takeaway is that all SaaS companies, even large public ones, must either grow quickly or make money. The relentlessly efficient capital markets will solve that equation if the current owners and management team cannot.

About the Author

Todd Gardner is the Managing Director of SaaS Advisors and the founder and former CEO of SaaS Capital. Todd was also a partner in the venture capital firm Blue Chip Venture Company and was a management consultant with Deloitte. Todd has worked with hundreds of SaaS companies across various engagements, including pricing, capital formation, M&A, metrics, valuations, and content marketing. Todd is a graduate of DePauw University and Indiana University.

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The State of SaaS Growth 2023

We’ve analyzed the billing data of over 2,100 B2B SaaS companies between 2022 and 2023 and have presented key insights, including:

  • Growth rates of businesses based on billing type
  • Where some of the fastest growing companies are located
  • The bar for raising your successive round of investment.

Download the report


The Only Two Metrics Investors and Operators Can Agree On

What constitutes a “good” efficiency metric, and how do you calculate them? Find out in Randy Wootton’s fast-paced presentation at SaaS Metrics Palooza.

Featuring: Randy Wootton

In today’s era of growth efficiency, understanding how to measure and optimize efficiency metrics is paramount. You need to align with your investors on what constitutes “good” efficiency metrics and how to calculate them.

As a 3x SaaS CEO, Randy Wootton has been there, done that.

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Launchpad is the premier monthly newsletter for B2B SaaS professionals. Learn how to tackle funding challenges, achieve compliance, improve your pricing, and streamline financial operations with actionable advice from industry experts.

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The decline in SaaS growth rates did not start last year; it started a decade ago. Much of this is a natural maturation of the industry as it gets harder to grow as you get larger. That said, this decline is still notably sharp.

Blog internal_Chart_Long-term SaaS Growth Rate for Public Companies

The graph includes all B2B SaaS companies that were public in this period as defined by the SaaS Capital Index. On 1/1/14, there were 17 companies; by 7/31/23, there were 69, so this is not simply a static pool of maturing companies. Many new companies have been added, yet growth is clearly declining.

Growth is simply getting more challenging as the industry gets bigger. More competition is fighting over new bookings and putting pressure on pricing and renewals. And if AI impacts software development the way most experts predict, even more software will hit the market in the next few years, and growth will get harder still.

Knowing growth is harder to achieve, management and investors must adjust their plans and spending accordingly. And as many have pointed out, you better have a great product as well.

SaaS Valuation Multiples

If we line up SaaS valuation multiples with the SaaS growth rates, we see some interesting trends and anomalies.

For this analysis, we used a static pool of SaaS companies, so new IPO entrants or acquisitions do not influence the growth.

The data suggest that investors have been pretty good at predicting the future growth rates of SaaS businesses. The run-up in multiples during 2020 preceded the post-COVID revenue bump in 2021, and the decline in multiples starting in the fall of 2021 foreshadowed the revenue slowdown that began in 2022 and continues today.

Why, then, have valuation multiples remained steady over the last 15 months, while growth rate has absolutely plummeted?

Chart_Median Public SaaS Growth Rates and Multiples

First, the market anticipated this level of contraction 15 months ago, and its lower expectations have been met. This is undoubtedly part of the equation, given how fast multiples declined early in 2022.

Chart_Growth Rate and Profit Margin

Second, the slowdown in growth has been mostly offset by an increase in profitability.

Mature public SaaS companies have gone from 13% to 11% on the Rule of 40 over the last year—a relatively modest net decline. From a valuation perspective, improving margins increases the likelihood of future profits and pulls them forward. Both factors offset the negative impact of slowing growth on the valuation multiple.

Third, the expected target interest rate for the Fed has remained consistent in the last 15 months, even as actual interest rates increased. Meaning that the interest rate impact on valuations was all adsorbed in the first half of 2022. 

Where do we go from here?

If we look over the long term, SaaS multiples averaged about ten times revenue, and growth averaged about 30%. Currently, multiples are down 30% from the long-term average, while growth is down more than 50%. That would indicate more downside in multiples is undoubtedly possible.

In terms of revenue and profit, the current trend lines are relatively straightforward and steady, indicating a continued deceleration in growth and a margin improvement. 

For this cohort, revenue growth is in long-term decline as the companies scale and mature; however, their recent decline is well in excess of what can be explained by natural maturation. That said, growth will get easier mathematically as the rate decreases, and any economic outlook improvement may help accelerate bookings.

Profit margin is more controllable than growth and is likely the more certain bet going forward. Because the businesses will continue to grow, at least modestly, and the SaaS model has such high operating leverage, I expect operating margins to continue to improve. This will support higher valuation multiples at all levels of growth.

The critical takeaway from this data is that while current SaaS multiples are well below those reached in 2020 and 2021, they are actually higher on a growth-adjusted basis and, therefore, have as much or more downside as they have room to bounce back. In addition, continued margin improvement will be needed to support valuations regardless of the growth trajectory.

Investments, both by VCs and management, need to be aware of the likely range of future SaaS performance and valuations to make better capital allocation decisions for 2024. 

I will dive more deeply into this data and correlate private SaaS data from the Maxio Institute at Expert Voices in Austin, September 20th. SaaS CEOs and CFOs are welcome for dinner, conversation, and community. Maxio is buying!

About the Author

Todd Gardner is the Managing Director of SaaS Advisors and the founder and former CEO of SaaS Capital. Todd was also a partner in the venture capital firm Blue Chip Venture Company and was a management consultant with Deloitte. Todd has worked with hundreds of SaaS companies across various engagements, including pricing, capital formation, M&A, metrics, valuations, and content marketing. Todd is a graduate of DePauw University and Indiana University.

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The State of SaaS Growth 2023

We’ve analyzed the billing data of over 2,100 B2B SaaS companies between 2022 and 2023 and have presented key insights, including:

  • Growth rates of businesses based on billing type
  • Where some of the fastest growing companies are located
  • The bar for raising your successive round of investment.

Download the report

Whether you’re raising your first institutional round of funding or you’re looking to retain funding from an investor, there are specific revenue growth metrics and KPIs that investors expect their portfolios to produce. Not only do these metrics help support the story you’re telling investors about the business, but they are the cornerstone of key operational insights that can help drive your business forward. In today’s landscape, investors are taking a closer look at their portfolio companies to ensure their sustainability and strategize ways to help them grow—even in times of economic downturn. That’s why we partnered with Fulcrum Equity Partners to create a comprehensive guide to SaaS KPIs and important metrics like churn, MRR, ARR, lead generation, and upsell revenue.

“Tracking these metrics provides a really insightful view of a company’s business model, sales efficiency, and customer validation. Ultimately, it delivers investors with the key information needed to build conviction during a fundraising process.” 

 -Chad Hooker, VP, Fulcrum Equity Partners 

What is a typical revenue growth rate for SaaS companies?

When you sit down to review your company metrics with your investors and the board, you’ll typically be faced with questions regarding new bookings, churn, and cash burn. These leading and lagging indicators allow them to track progress of your company’s performance quarter-over-quarter.

However, what investors really care about is your company’s revenue growth rate. How does the current period’s revenue compare to the previous period’s revenue? How are repeat customers and customer retention factored in? How much of what your company brings in is the result of sales revenue vs. upsells and cross-sells from your CS team?

In order to gauge your own company’s performance vs. similar SaaS companies in your vertical or revenue range, you’ll need accurate benchmarking metrics. The 2022 OpenView SaaS Benchmarks Survey breaks down the median SaaS revenue growth rate as follows:

<$1M: 100% (46-286%)

$1-2.5M: 79% (37-153%)

$2.5-10M: 50% (30-115%)

$10-20M: 72% (30-101%)

$20-50M: 40% (30-52%)

>$50M: 30% (18-55%)


How to calculate your revenue growth rate

To accurately benchmark your revenue growth rate, you’ll need to make sure you’re calculating the metric appropriately. Here are the steps you can take to calculate your revenue growth rate and see if your company is heading in the right direction:

1. Determine the time period: Decide on the time period for which you want to calculate your revenue growth rate. It could be monthly, quarterly, or annually, depending on what your board and investors want to see.

2. Gather the revenue data: Collect the revenue data for the chosen time period. This can be obtained from your financial statements, such as income statements or profit and loss statements. You can also pull this data directly from a SaaS metrics platform like Maxio.

3. Calculate the revenue growth: To calculate your revenue growth rate, use the following formula.

Revenue Growth Formula
  • Subtract your previous revenue from the current revenue in the specified period (monthly, quarterly, yearly)
  • Divide the result by your previous revenue
  • Multiply the quotient by 100 to express the growth rate as a percentage

For example, if your previous revenue was $100,000 and your current revenue is $150,000, the calculation would be:

Revenue Growth Rate Example

4. Interpret the result: Once you’ve calculated your revenue growth rate, interpret the result to gain insights into your business’s performance. A positive growth rate indicates your revenue is increasing, while a negative growth rate suggests a decline in revenue. The magnitude of the growth rate reflects the pace of revenue growth.

5. Analyze and adjust: You can use your revenue growth rate as a key performance indicator to evaluate your business’s performance over time. Compare it with SaaS industry averages or your own historical data to identify trends and patterns. If the growth rate is lower than desired, consider implementing strategies to boost revenue, such as expanding your customer base, launching new products or services, or improving marketing efforts.

6. Consider your business model: If your company makes use of subscription-based services, it is important to factor in the churn rate of your customer base. Churn rate refers to the percentage of customers who cancel their subscription within a given time period. Reducing churn can lead to more revenue and a higher revenue growth rate.

7. Track conversion rates: To increase revenue growth, it’s important to track conversion rates—the percentage of potential customers who become paying customers. By improving conversion rates, you can increase your customer base and ultimately generate more revenue.

8. Focus on total revenue: While your revenue growth rate is an important metric, it’s important to also focus on total revenue. A high growth rate may be impressive, but if the total revenue is low, it may not be sustainable in the long run.

By regularly calculating and analyzing your revenue growth rate, you can make informed decisions and take proactive steps to drive the success of your business.

Now that you highlighted the importance of your revenue growth rate, let’s take a look at the other revenue growth metrics that matter to your investors.

Insights from investors: revenue growth metrics

Revenue growth performance metrics provide visibility into the health of your business and its growth potential. You’re likely familiar with these, but we’ll recap what they are just in case.

Foundational metrics you should know:

  • ARR and MRR
  • ACV
  • CAC, CLV, and CAC Payback


Annual Recurring Revenue (ARR) or Monthly Recurring Revenue (MRR) is the value of the contracted recurring revenue components of your term subscriptions normalized to an annual or one-month period. While an MRR/ARR number is important, it’s the momentum categories that provide true insight. In Maxio’s Subscription Momentum reports, we break ARR/MRR down into the following categories:

  • New ARR/MRR: new sales to new customers
  • Expansion ARR/MRR: existing customers who expanded their subscriptions or licensed additional products or modules
  • Contracted ARR/MRR: existing customers who downgraded their subscription and/or reduced their consumption
  • Canceled ARR/MRR: existing customers who canceled their subscription. These components are frequently measured in both absolute value and relative value and are often presented in the context of incremental changes from period to period

The investor’s point of view on ARR or MRR

Monthly Recurring Revenue: An Investor's Point of View

One of the most essential metrics investors evaluate is quarter-over-quarter ARR or MRR bookings growth.

Quarter-over-quarter bookings growth provides valuable insights into the momentum and velocity of the business. Investors consider it to be one of the leading indicators of overall business performance.

Average Contract Value

Average Contract Value (ACV) is a measure of the average revenue generated per customer and is usually calculated annually.

A growing or contracting ACV is a good indicator of the value you’re providing customers. 

This metric is also a critical input for your sales and marketing plan and provides visibility into how many leads (MQLs) and opportunities (SQLs) are needed to achieve your plan.

The investor’s point of view on Average Contract Value

Average Contract Value: An Investor's Point of View

Tracking ACV over time is valuable to understand evolving customer behaviors. It helps drive decision-making for sales and marketing, customer success and retention, as well as your product roadmap. 

ACV is also a useful metric to measure the success of land-and-expand growth strategies, upsell initiatives, and a company’s ability to deliver value to customers continually.

Customer Acquisition Cost

Customer Acquisition Cost, or “CAC,” helps you make important decisions about allocating sales and marketing spend. It’s valuable in understanding how much your company is making from each new customer.  

In essence, these metrics measure how long it takes to surpass the money you spent to acquire that customer.

  • Customer Acquisition Cost (CAC): the total sales and marketing resources associated with acquiring a new customer
  • Customer Lifetime Value (CLV): the average revenue or profit a customer will generate before they churn
  • CAC Payback: the time it takes (in months) to recoup the cost of acquiring a new customer.

Note: Calculating CAC can be a very nuanced effort. Depending upon how your business is structured, automatically including all sales and marketing costs in the month they appear can be misleading. We recommend a thoughtful approach here. Start by asking the question, “Is this truly a cost associated with acquiring a new customer, and is this the correct time period for this expense?”

You can also measure your CLV against CAC, commonly known as your CLV/CAC ratio, to determine what you can expect to net for every dollar you spend to acquire a customer.

The investor’s point of view on customer acquisition costs

Customer Acquisition Costs: An Investor's Point of View

CAC, CLV, and CAC Payback are used to measure the performance of sales and marketing teams and are also extremely valuable in understanding the efficiency of a company’s growth model.

Investors will spend a significant amount of time in due diligence, analyzing the scalability of your sales and marketing organization. These metrics are great validations that additional investment in sales and marketing activities will drive value creation.

Get Your Free SaaS Metrics Template

Template provides you with a comprehensive set of pre-built SaaS metrics (that you can trust) to wow investors and make key business decisions with confidence.

Increasing revenue and pleasing investors: final thoughts

What’s the best way for SaaS leaders to increase their revenue and please investors? The answer is simple: provide more value to customers. By doubling down on customer satisfaction, you’re essentially knocking out two birds with one stone.

At Maxio, we’ve built a platform to help you do just that. Our SaaS metrics and analytics dashboard helps you see how product lines and business segments are performing across your customer base. You can then use that knowledge to pull the right growth levers in your business, increase revenue, and ultimately get buy-in from investors on your next stage of growth.

If you found the additional context provided around these revenue growth metrics helpful, check out our e-guide to see the full list of KPIs and insights from the investors at Fulcrum Equity Partners

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Raise or Sell? Calculate Your Equity

This downloadable excel template is designed to help founders and other shareholders of SaaS companies decide if raising a round of equity would result in an economic gain for them.

Get the calculator

What’s inside?

The model presented in this calculator compares selling your company today vs. raising capital, absorbing dilution, growing ARR, and selling in 24 months.
We called upon industry expert Todd Gartner and SaaS veteran Jon Cochrane to share their thoughts and speculations on the current market and give a quick tour of the calculator so you will know how to use it to its full potential.

Create financial reports that instill investors with confidence

Want to bridge the gap between your funding rounds? Or shore up your balance sheet? Or stop sweating bullets every time you check on your cash projections?

As SaaS owners and operators continue to feel the squeeze of the market, alternative funding options like revenue-based financing (RBF) are quickly gaining in popularity. That’s why we’ve teamed up with revenue-based financing provider, Capchase, to help you understand exactly when (and why) it makes sense to pursue RBF. 

Here’s what you need to know.

What is revenue-based financing (RBF)? 

Revenue-based financing (RBF) is a type of financing where a company receives funding in exchange for a percentage of its future revenues. In an RBF agreement, the investor provides capital to the company in exchange for a percentage of the company’s gross revenues until a predetermined amount of money has been paid back.

Unlike traditional debt financing, where the borrower pays back a fixed amount of money plus interest, RBF does not require fixed payments. Instead, the payments are based on a percentage of the company’s revenue, which means that the amount paid back to the investor will fluctuate based on the company’s performance. This can be a more flexible financing option for startups and early-stage SaaS companies that may not have a consistent cash flow to make fixed payments.

What are the advantages of revenue-based financing?

1. Fast time-to-value: The availability of SaaS financials and metrics allows for pretty seamless and rapid underwriting of software companies. For example, by partnering with a SaaS FinOps platform like Maxio, RBF provider, Capchase, is able to take SaaS metrics like ARR, NRR, and CLTV to draw up a funding offer within a few days. This frees up time for the entrepreneur or founder that wouldn’t be made possible when pursuing a traditional VC funding round.

2. Flexible and scalable: When you take out a term loan from a bank, it comes out in one chunk (and you might be drawing more out than you actually need). However, with RBF, you can draw out your funding in increments—this could be week by week or month by month. 

RBF providers like Capchase encourage founders to think about how much capital they actually need. The ability to determine the length of your cash runway gives founders the working capital they need to pursue efficient growth without being tied to a huge capital funding raise and the strings attached that come with traditional venture capital.

3. Simple and straightforward deal terms: When compared to traditional VC funding, RBF deal terms are pretty easy to understand. There are no warrants, covenants, and no strings attached. Financing is calculated as a percentage of ARR and the only fee charged is the interest rate on the loan.

Who is a good fit for RBF?

In short, revenue-based financing is ideal for SaaS companies that are looking to:

  • Access capital faster and spend more time scaling
  • Fund growth without more dilution
  • Withdraw funding as needed

You need fast access to capital

Technically, you can start accessing funding against your revenue as soon as you’re revenue positive.  Przemek Gotfryd, Co-founder and COO of Capchase, notes that most of the companies that Capchase works with typically start at a few 100k of ARR. Then, as your revenue grows, so does your availability of working capital—this could span anywhere from $10,000 to hundreds of millions of dollars.

You want to diversify your funding sources

In many instances, it makes more sense to stick to the traditional funding route. For example, Venture Capital might be the solution for some investments that you’re making multiple years out in the future such as hiring engineers or investing heavily in research and development.

Then, once you find product/market fit or start steadily generating revenue, you can use that revenue as an asset to raise working capital via revenue-based financing. This capital raised through RBF is best used to fund activities that generate predictable returns (i.e. Marketing spend, hiring staff, and go-to-market campaigns).

Another use case for revenue-based financing is to bridge the gap between funding raises. While not all companies that pursue RBF are VC-backed, revenue-based financing allows businesses to extend their cash runway when raising a round doesn’t make sense (e.g. raising a down round, avoiding dilution, or dodging poor deal terms). 

A revenue-based financing success story: Blue Triangle Technologies

While RBF makes sense in theory, does it actually work well for high-growth SaaS companies?

Here’s what Lance Ullom, CEO of Blue Triangle Technologies and Capchase client, had to say:

We looked at a number of different fundraising opportunities, everything from equity financing, venture debt, hybrid, and revenue-based financing, and ultimately, we decided to go with revenue-based financing. Some of the challenges we had with more traditional equity investments was the timing—especially with due diligence. And while we didn’t need additional capital, we thought it would be good to shore up our balance sheet due to the current uncertain economic outlook. So, after reviewing all our options, Capchase turned out to be an excellent solution for us.

— Lance Ullom, CEO of Blue Triangle Technologies

How should founders be thinking differently about their funding strategy?

Capital is no longer abundant or cheap. This could change in a few years as the market swings the other way, but for now, this is the state of funding. 

According to Carta, Series D saw the steepest drop in total cash. Cash going to Series D rounds dropped by 48% from Q1 to Q2. And regarding early-stage raises, series B round sizes dropped for the second quarter in a row.

After six straight quarters of steady increases, the median size of a Series B round has plunged for two quarters so far in 2022, falling to $20M in Q2.

This uncertainty created by the pullback in VC funding is forcing SaaS owners and operators to be agile and explore alternative funding options (like RBF). This is due to multiple reasons such as longer funding cycles, increased due diligence, and greater equity dilution. While not all VCs are pulling their term sheets, the current state of funding means founders need multiple financing options to shore up their balance sheet and ensure their cash reserves are healthy.

Founders and SaaS executives should also be concerned about the state of their lenders’ balance sheets as well. Based on recent events such as the collapse of Silicon Valley Bank and general market volatility, owners and operators need to be well aware of the stability of their lenders. 

What does the revenue-based financing process look like?

Now that we’ve covered eligibility and use cases for revenue-based financing, here’s what the typical funding process looks like from start to finish:

1. Sync your data

Using an RBF platform like Capchase, connecting your accounting and billing data through Maxio can be done in only two minutes. If you’re not a Maxio customer, many revenue-based financing providers also accept Excel files or additional documentation of your company’s financials or operating metrics.

2. Seamless underwriting

Once your metrics have been reviewed, a funding offer can be given in as little as 48 hours later. This offer will tell you what percentage of your ARR is available for financing, as well as any additional costs, the length of the funding term, and the specified payback period.

3. Access your capital 

Once approved, SaaS owners and operators can access their capital directly from Capchase or their chosen revenue-based financing provider.

4. Additional funds

One of the biggest pros of revenue-based financing is that it can be drawn on an as-needed basis with minimal equity dilution. If you need additional funding, you can repeat the financing process with your RBF provider and raise an additional round based on the current state of your ARR and other SaaS metrics.

Extend your cash runway with Maxio + Capchase

You don’t need to give up equity, sit through lengthy funding cycles, or drastically cut overhead to extend your cash runway. By exploring funding alternatives like revenue-based financing, SaaS founders and executives can strengthen their cash reserves and take meaningful steps toward their next stage of growth.

Want to join thousands of other SaaS founders taking control of their funding?

See how you can use Maxio and Capchase together to fund your growth.

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What are your biggest financial challenges?

You can’t expect to build a highly profitable SaaS company through manual processes alone—especially when it comes to managing your finances.

This guide shows you how Maxio automates accountants, controllers, and SaaS finance leaders’ day-to-day workload, and how it can eliminate your financial headaches for good.

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According to Harvard Business Review, 80% of company mergers will ultimately fail. What is it that separates a successful merger from a bad investment? And how can you ensure the long term success of your organization?

Before Maxio, I took RocketFuel private via a PE transaction and then sold the next company I was CEO of (Percolate) to Seismic—the industry-leading Sales Enablement company. I then spent two years as the Chief Strategy Officer at Seismic and was responsible for building the business case for acquiring two companies and making a strategic investment in another. 

While I had been part of many acquisition integration teams at previous companies (e.g. aQuantive, Microsoft, and Salesforce) it was during these last several years in leadership roles that I developed a more robust appreciation for how to set up an acquisition for success as an operator. 

For starters, as CEO, you must develop a clear strategy about how to approach M&A and the value it will provide to your organization as a source of inorganic growth. You can think about this “value” by separating potential M&A targets into two categories:

1. Strategic M&A: This type of M&A process aims at accelerating your growth trajectory by increasing your market share (through competitive take out), broadening your customer base (through segment or region expansion) and/or adding key technical capabilities (through an acqui-hire). All of these growth investments are geared toward supporting inorganic growth that complements your organic growth (aka core business) initiatives 

2. Opportunistic M&A: This type of M&A process is typically the result of a company in an adjacent category or with complimentary tech or customer base reaching out (usually via a banker) to gauge your interest in acquiring them. 

While both of these processes result in potential economic gain, a strategic M&A is a long-term play, while an opportunistic M&A is usually the result of a decrease in a company’s price or valuation (hence the name).

At Maxio, the merger of SaaSOptics and Chargify was ultimately a strategic play. By offering SaaS billing, invoicing, revenue recognition, financial reporting, and SaaS metrics in one FinOps platform, we’re able to fill a gap in the market for growing B2B SaaS companies. 

Even though Maxio has proven to be a success, the hard truth is that most mergers don’t work out. 

According to a recent Financial Times article, companies spent around $5 trillion on M&A activity in 2021, and an astonishing 70% of mergers are estimated to fail to deliver any increase in economic value or improvement in operating profits (the definition of M&A success). This failure rate has not changed over the years. When I first started down the path of M&A, I read this article from Harvard Business Review which is consistent with many other sources.

Ultimately, The #1 cause of failed deals is accounting errors. Discrepancies in a company’s financials will inevitably be flagged during due diligence and can stop a deal in its tracks. This is one of the problems we’re solving at Maxio—our platform gives SaaS finance leaders access to accurate, up-to-date financials 24/7, so they can pass due diligence with flying colors.

To build a durable business, it’s vital to understand why so many mergers fail so that you can avoid the pitfalls and use an M&A-based strategy effectively to realize your full potential. 

McKinsey Consulting has a 6 stage M&A process which is relatively simple and intuitive. In this blog, I am going to focus mostly on steps 1 and 2.

Create a strategic M&A landscape

The hard work of M&A starts with the CEO and board of directors getting aligned on what the broader market landscape looks like and where their company sits. As you evaluate the landscape, you need to make deliberate decisions about where you are going to build, partner, or buy. Building this strategic landscape requires two steps.

1. Create a “lens” through which you evaluate EVERY opportunity. I have found it helpful to use two dimensions to view potential targets: Software similarity and user/buyer similarity.

Capability Expansion

2. Plot out the landscape of capabilities across a matrix. (Note: I am repurposing a model from Bain Consulting)

Product Roadmap Framework

You start by putting your core capability in the upper right. You then place different “capability categories” in the different cells. For each of these capabilities, you need to decide whether to build, buy, partner, or ignore. 

One example of using this framework was the investment we made in Payments. We spent 6 months last year partnering with a leading PayFac to bring Maxio Payments to market because the capabilities were valued by our buyers and users, but it would have taken YEARS for us to build on our own. As we look at other adjacent categories, there are several where we want to aggressively pursue M&A versus partner or build because we think there is interesting luck in tech investments. 

Once you have your strategic landscape laid out and are aligned with your board, you can then evaluate opportunities that pop. In the current market environment, there are going to be a plethora of opportunities popping up as companies don’t achieve their growth ambitions and find it hard to raise new capital. I have 2-3 “great deals” to look at each day. 99.9% of them I pass on, but there have been a couple over the past 3 months that I have engaged with because they fit into our strategic plan. 

Complement, but don’t cannibalize

Software similarity 

When evaluating the software similarity, it is important to understand whether the two companies truly complement one another. Will the merger add value for existing customers? Will it make it easier to recruit newcustomers? 

Consider product adjacencies, but also the merged company’s potential for expansion into new regions or market segments. It is also important to understand the tech stack and whether core technologies can be integrated without rebuilding from the ground up. We are an AWS shop and will not look at companies built on other clouds.

However, Seismic (where I worked previously), had a different philosophy. They chose to be cloud agnostic and supported customers who wanted to be on GoogleCloud, Azure, and AWS. This is a very different strategy and requires a different architecture. At the application level, it comes down to what languages they are using. You can’t just take a Python code base and flip it to Java. Often, this should be a deal killer.

Buyer similarity

When evaluating the buyer similarity, it is much easier to add a capability that can be sold by your current GTM team and infrastructure than it is to add on a whole new ICP/target persona that the acquiring company has to embrace. It can be done, but it is incredibly difficult. The two companies’ GTM strategy and pricing models should also align or work in ways where alignment can easily be achieved without major disruption. Could each team easily sell into the other’s customer base? Does one sell seat-based deals and the other usage-based deals? This can confuse buyers and slow down deals as you work through contract redlines. 

The best mergers bring obvious synergies—in tech, markets, regions, etc—that allow both companies to grow and add value, but also enough contrasts that both companies each bring something unique to the table. Ideally, you should aim for about 70% overlap of culture and mission to ensure that you can succeed.

Timing is essential

Even if both companies are a good match on paper, deciding when to merge is critical. You need to consider their combined total addressable market, expansion trajectory, and their opportunities for growth.

 You also need to understand the invested capital and expected valuation/ return by the target’s investors. There are lots of great deals that could happen, but the two parties can’t agree on valuation.

Finally, the most important factor to consider is evaluating your company’s stage of development and capacity to absorb an acquisition. Does your executive team have experience scaling organizations from your size today to what will be the combined size? Do you have systems and infrastructure in place to support the next stage? If not, you might want to spend some time building a solid foundation before trying to merge/integrate with another company. You don’t want to build a second story on a house that is already shaking in the wind. 

You need to be clear about the work involved, and the opportunity costs you’ll incur when you devote resources to an integration. I cannot emphasize this enough. To make an integration work, it is a “whole company” bet. 

Do you have the capacity on your team to fund an integration center of excellence? Will the benefit you get in 12 months be worth the 12 months of distraction that you take on with an integration? During this time, the competition is going to be innovating and pointing out to all of your customers that you are losing focus and not keeping up with the market. Would you be better simply focusing on your own internal roadmap and executing?

Leadership is everything

My old CEO, Doug Winter, said to me when I was the Chief Strategy Officer: “Bankers don’t sell companies. CEOs do.” As the acquiring CEO, you are the one who has to create the strategic M&A roadmap. And you have to be the one to sell the board and your executive team that this is a great idea given all the potential downside risks. You also have to be the one to take point in leading the process with the target. Your banker, your VC/PE partner, and/or Corp Dev team can help field the opportunity, but ultimately it is going to come down to how you and the other CEO view the broader landscape and feel about the potential of 1+1=3. The only way to turn two organizations into one is if both CEOs see eye-to-eye on the future of the merged business. 

This requires radical transparency and extending a level of trust early in a relationship—probably earlier than most people feel comfortable. The two CEOs and then, over time, the two executive teams, need to bring to the table everything they know about their culture and the companies they’ve built. 

During this process, both leaders should be selling their vision and scrutinizing the package they’re being sold—like a job interview where you’re simultaneously the candidate and the hiring committee. Both CEOs should come out of that process with a strong gut feeling that what they’ve built will be preserved and nurtured and that the new alliance will unlock bigger opportunities for both sides. There are going to be some hard times and a lot of tough decisions to be made about people, brand, and tech–especially in the first year. Both parties, together, need to be able to come back to the investment thesis and help people manage through the change. 

Once you’re aligned on the vision, it’s time to lock down the post-deal process of change management and culture building. I have found this is where people usually underestimate the time and energy required. Assuming you have done robust due diligence and internal evangelism up-front, then as the CEO you have to make a swift pivot to implement the merger, integrate the two companies, and move efficiently through the transition. You have to create forums for the employees, the leadership team, and the board to hash out issues and ensure that you deliver on the promise of the investment thesis over time.

Success story

At Maxio, we used this approach—leveraging the amazing work of our existing leadership, the insights and culture of both companies and a strong, data-driven vision for the future—to unlock value for our customers and open the door to new opportunities. 

We’ve been extremely mindful of our need to continue serving existing customers and expand the value we deliver as we integrate our product and operations. We’ve also worked to keep our employees energized and informed at every step of the way. It wasn’t always easy, but I can feel that we have moved from integration to innovation once again as we approach the 2nd birthday of the merger. 

Like any business, Maxio is a work in progress. But our success shows that when it’s done right, an M&A strategy can pay enormous dividends if you take the time to understand your business and your growth strategy, articulate a powerful vision for the companies you’re drawing together, and then ensure you have laser-focus on execution.

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Looking for an alternative to traditional VC funding? This calculator will help you to explore and model your debt financing options.

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This calculator will help you compare your debt financing options, including:

  • Line of credit model
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See how different debt structures will impact your cash runway up to 36 months, and make accurate assumptions of how raising debt can help you fuel growth or breakeven in the future.

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SaaS financial audits. There’s nothing else like it in a typical SaaS business. Imagine if your sales team had to go through last year’s opportunities with a fine-toothed comb and prove they followed the (often quite fluid) sales process with the expectation of zero inaccuracies or oversights. 

Now, imagine they had to do that while still closing this year’s deals and working on new opportunities in the pipeline. It’d be madness, no? 

Well, that’s what FinOps professionals endure every single year. 

So what’s the deal? Should you just suffer in silence during annual audits and resign to the fact that you’re going to be working 12 hour days for a few months? 

Turns out, there are some processes and technologies that you can implement to make your next financial audit run smoother. 

For more tips on how to simplify your SaaS financial audit, read this article from Tim McCormick, former CEO of Maxio (formerly SaaSOptics). 

SaaS Financial Audit Structure 

If you’re headed into a year one audit, it’s helpful to understand exactly how financial audits work. Financial audits typically include the following components: 

  1. Pre-audit prep work 
  2. Random Selections 
  3. Field Work 

We’ll dive into each to give you a better idea of what to expect. 

Pre-Audit Prep Work 

Preparing for an upcoming audit is arguably the most important part. Ideally, your team will have strict processes and controls in place year-round that will make the audit season less painful. 

A good place to start prepping for an audit is to have solid revenue and expense recognition policies in place.  

A revenue recognition policy is a single document that details your processes and methodologies used to recognize revenue in your business. 

Your rev rec policy is where you establish the rules that govern the consistent application of the ASC-606 framework at your company.

Likewise, an expense recognition policy surmises your processes/methodologies for recognizing prepaid expenses and fixed assets in your business. 

A solid revenue recognition policy will contain the following components: 

  1. Data (Products you sold and how you recognize revenue)
  2. Guidance (How your company complies with GAAP and IFRS-15)
  3. Process (What does it look like on a day-to-day basis)

An important thing to note about revenue recognition policies is that they aren’t static. As your business and regulatory requirements evolve, you’ll need to update your policy to reflect those changes. 

For an audit, the most important thing is being able to point back to your documentation and explain how your day-to-day business operations followed your pre-defined policies. 

Not sure where to begin with your policy? Get our free revenue recognition policy template today for help getting started. 

Random Selections

Random selections are just what they sound like. Your auditors will request a random sampling of your customer data for review. 

Your auditor will want to see all relevant data pertaining to that customer including the contract, invoices, revenue schedule, deferred revenue, etc for the previous fiscal year. 

The more easily you’re able to pull this data, the faster your audit will go. 

Field Work 

In a pre-COVID world, field work would entail your auditors coming on-site to review random selections and interview employees about the controls and processes your team has in place. 

These days, much of this work is conducted over Zoom or over the phone, so it’s even more important that your documentation is buttoned up and your team is on the same page. 

During this time, your auditors will review random selections to ensure they match topline revenue and deferred revenue figures and inquire about things like fraud prevention, risk exposure, etc. 

Where You Can Lose Time in a SaaS Financial Audit 

Audit timelines can span anywhere from a few weeks to a few months. While a speedy audit is preferred to a long, drawn-out one, the most important thing is accuracy and data integrity. If you can produce a clean audit quickly, that’s an ideal scenario.  

Typically, your auditors will charge a flat fee for the costs incurred from conducting the audit. However, if the auditors run into issues with data integrity and have to go back and forth with your team reconciling discrepancies, you will be subject to additional, out-of-scope billing, often by the hour. 

The following are some common occurrences that can prolong your audit:

You Can’t Find a Contract 

It seems simple, but something as basic as being able to produce a contract for a specific customer can prove very difficult if you don’t have the right systems and processes in place. 

Often, contract data lives in many different places. You may have the actual document in DocuSign or some other document management system, but you probably also have it in Salesforce or some other document repository. Or, sadly, possibly on a former employee’s old laptop.

When you’re relying on manual processes to keep track of your contracts, human error is bound to creep in. If your auditor requests to see a contract and you either can’t produce it or it does not match what’s reflected in your financial statements, you’re going to run into trouble. 

There Are Issues With Your Revenue Recognition Policy 

As mentioned above, a good revenue recognition policy will include data on products sold, guidance on how the company complies with GAAP/IFRS standards, and examples of what your process looks like on a day-to-day basis. 

A common mistake in crafting your revenue recognition policy is not providing specific examples for things heavily affected by ASC-606 such as the recognition of revenue from implementation and service fees. 

There are a host of other things that can create complex revenue recognition scenarios, such as mid-month start dates, opt-out clauses, changes to pricing and packaging, and commitments to deliver any non-standard products or services. 

An easy rule of thumb to follow: if it’s a scenario that arises in your business, however infrequently, it needs to be documented in your policy. 

There Are Inaccuracies in Your Data 

Inaccuracies can arise in your data in multiple ways, especially if your financial operations rely on manual processes and spreadsheets.

The most common type of inaccuracy will arise if your financial transactions don’t match your contracts. For example, you have a contract that reflects a $20,500 annual subscription fee, but it somehow got entered into the spreadsheet as $20,000. The reason your auditors inspect contracts is because that’s what both parties agreed to. They function as the guidepost regardless of what your spreadsheet says. 

The other inaccuracy that arises frequently is formula errors in your spreadsheet. One incorrect calculation can throw off your entire spreadsheet. In the case of deferred revenue, referencing one cell off from what you intended will wreak major havoc across your entire sheet, causing headaches for you and undermining your data integrity in the eyes of your auditors.

Maxio for SaaS Financial Audits  

Maxio offers out-of-the-box financial reporting that makes it easy for your team to access financial metrics in a matter of seconds. 

The following are a few reports and features within the Maxio platform that are helpful for financial audits. 

Advanced Revenue Summary 

The advanced revenue summary allows you to see recognizable revenue on a monthly basis. It also gives you the ability to drill down into different types of revenue, which is a common request that auditors will make. 

With the Advanced Revenue Summary report, you can differentiate between revenue types such as professional service and subscription revenue. You can also see past and future scheduled revenue by simply adjusting the report’s filters. 

You can also break out revenue by type as well as filter by specific contract numbers. In the instance of a customer with multiple contracts, you can combine those contracts and see a single scheduled revenue number at the customer level. 

Contract Details Report

The Contract Details report allows you to build out deferred revenue waterfalls and see Unbilled Accrued Revenue at specific points in time. Like the Advanced Revenue Summary report, it enables you to break down the data by Items sold, specific contract number, etc. 

In both reports, you’re able to report on GAAP revenue at a high level and in granular detail depending on the requests of your auditors.


RevenueBooks is an advanced workflow in the Maxio platform that allows users to re-allocate revenue across their contract population using flexible, fixed, and dynamic formulas.

RevenueBooks allows you to handle complex revenue recognition scenarios, and in the instance of a financial audit, it allows you to measure, manage, visualize, and compare any changes to your revenue treatment. For example, you can use it to see the changes between revenue treatment under ASC-605 and ASC-606 standards. 


The e-Invoicing feature within Maxio allows you to send invoices directly from the Maxio platform. Once an invoice is sent, the PDF is attached to the customer record within Maxio, making it effortless to go back and find a specific invoice without having to reference multiple systems. 

As mentioned above, not being able to produce a specific invoice or contract can slow down the audit process significantly. Having a single source of truth for all your financial data speeds up the process and makes it a lot less painful.

Order-to-Cash Integrations

In addition to e-Invoicing capabilities, Maxio connects to popular CRMs and General Ledgers to fully automate the order-to-cash process in your business. 

When connected, order data that is entered into your CRM can be automatically synced to Maxio where it’s converted into financial data. 

Our system will automatically generate invoices and revenue schedules for the contract once the order is synced. 

From there, you can invoice and collect cash directly from the platform, and Maxio will send the information needed to generate your journal entries to your GL. 

From an audit perspective, having all financial data based on actual transactions flowing through the platform greatly reduces the risk of error from manual data entry in spreadsheets. 

Financial Audits – Looking to the Future 

Financial audits are a reality for FinOps professionals everywhere. But they don’t have to be as painful or time-consuming as they once were. 

The problem with running into issues during a financial audit is that every issue encountered has a massively outsized effect on the business. 

You are still responsible for your day job when going through a financial audit. Running into issues during your audit means more time spent away from the day-to-day operations of the business, which leads to (you guessed it) mistakes and oversights that will come back to haunt you next audit season. 

SMaxio for financial audits–and really the overall management of financial operations in a SaaS business–is your best bet for achieving a clean financial audit in a reasonable amount of time. 

Want to learn how Maxio can help you with your next financial audit? Talk to a team member today.

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