In the world of SaaS startups, valuations are a tough nut to crack. The myriad conversations I have had with new startups over the years almost always end up with me crushing their dreams of a great idea with a really high price sticker. 

Unfortunately when it comes to SaaS startups, the amount of time, blood, sweat, tears (and all that money spent) have absolutely no relevance to your valuation. A startup that's only been around for 4 weeks, and has been built quickly and cheaply, can be worth double that of a startup that has been around for over a year and has a perfectly designed product. 

It all comes down to one thing: Traction.

Investors are looking for startups that can prove they can be successful. And this proof comes with traction. Whether it's getting 10 or 1,000 paying customers, showing strong traction on both user growth and revenue (if relevant for your product) will increase your valuation.

So to get down to brass tacks, how much will is it actually worth? When you are looking to get investment here are some guidelines in regards to value:

1.  Pre-Revenue - if you haven't pulled in your first few paying customers yet (or a large pool of freemium customers) then I'm afraid you have no real traction yet. This puts you in the bracket of 250-500k valuation depending on the value of your idea and the size of the market opportunity. 

2.  Early-Revenue - if you have achieved a small pool of paying customers (or a large pool of freemium customers) and can show solid interest and growth occurring within your user base then you have proved traction is possible! This puts you in the bracket of a 500k-2 million valuation - depending on the number of paying customers, current monthly revenue, and market opportunity.

NB: To get a $2 million valuation at this stage you would be needing to achieve exponential traction above market expectations.

3.  Scaling - once you have achieved traction and you have great growth in both paying customers and revenue, you move into the realm of comparative market valuation, and out of the early valuation stage. This simply means looking at similar companies to yours (by size, scale, market) to gauge how your company is valued in comparison.

Valuations here widely range from 2-50+ million (depending on how traction is going) and become more complex to calculate, usually relying on extrapolating a revenue multiple that accurately reflects your companies stage of scale.

But I can get more than that...

You may have already had some exciting conversations with potential investors willing to accept a higher valuation than the ballparks above. This may be due to the investor seeing 'above and beyond' value in what you are offering, or more often it's an investor that doesn't have a strong background in SaaS startup investment and you've simply managed to sell them a higher price.

Taking a higher valuation offered is completely up to you. The only caution here is that at some stage your company will join up with the 'SaaS Investment river' made up of angel investors and VC's that have set valuation expectations. If you have taken a higher valuation early on, and not been able to achieve phenomenal traction then you become overvalued, and may need to take a step down in valuation. Food for thought.

Amy Walker - Specialist in SaaS Strategy & Business Execution

I work with SaaS companies to develop their key strategies, and assist them to get the right tools in place to be able to execute seamlessly in market. I believe that the only thing preventing a great idea from scaling globally is a clear strategy supported by strong execution.

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