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:
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.