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Most high-growth software investors value public companies on enterprise value to forward revenue multiple. But investors in private companies use a different metric, enterprise value to forward annual recurring revenue (ARR).The private markets project the ARR a year from now. The public markets project revenue for the next 12 months

What if we could compare the relative valuation multiples of public and private high growth software companies? What conclusions could we draw? It’s possible with some estimation. To estimate ARR for a public company, we annualize the analyst consensus estimates for the revenue 4 quarters from today.

Each quarter, a group of analysts, including me, publish analysis on the trends in the venture capital market. There’s a risk to those assessments: the data is incomplete since not all rounds founders close within a quarter are reported in that quarter. I was curious about how much variance exists in the data.

This retrospective analysis compares Crunchbase data from April 1, 2020 to data from October 10, 2020 across three dimensions: round counts, investment total, and median round size. The red lines show data from Q2 and the blue line Q4.

Public software companies trade on forward revenue multiples. Investors contrast the relative value of one business by comparing the enterprise value divided by forward revenue (sum of the next 12 months’ revenue) of one business to another. Ten years ago, forward multiples remained in a tight band between 5-10x. Today, they span 2-60x+.

This novel dispersion provides us an opportunity to ask some interesting questions.

Let’s cover one today: does the market price efficiently? We know revenue growth rate correlates most with forward multiples. If we divide the forward multiple by the growth rate, we normalize it, which means we can compare them on a pineapples-to-pineapples basis

I’ve been steadily progressing through the excellent books in the Stripe Press catalog. First, I read High Growth Handbook. Most recently, I read An Elegant Puzzle: Systems of Engineering Management by Will Larson. It’s the best book I’ve read on engineering management.

Will has worked at Digg, Uber, Stripe, and is now at Calm and has seen many engineering teams endure and thrive through hypergrowth. The book abstracts out the wisdom of those times into theory abstracted from experience, not just hypothetical ideas. Will extends the concepts of systems thinking into engineering management.

Recently, we welcomed Kimber Lancaster to Office Hours at Redpoint to discuss running successful virtual events. It was a fantastic session in which Kimbre surfaced counterintuitive insights about one of the most critical marketing channels of 2020. Below, I’ve summarized some of my notes from the session.

First, there’s much more crossover between physical and virtual events than most people think.

Join us on Wednesday, October 7th, at 9:30 AM PT, for our next Redpoint Office Hours. [Medha Agarwal(https://www.linkedin.com/in/medhakagarwal/) will host the conversation “Every Company is a Fintech Company” along with special guest Kaz Nejatian, VP & GM of Shopify Financial Solutions (including Shopify Capital). Prior to Shopify, Kaz was the Product Lead for Payments and Billing at Facebook and was the former founder and CEO of Kash, a payment technology company that was acquired in 2017.

High growth software companies are valued based on forward revenue multiples. In other words, to calculate the enterprise value of a business, you multiply the revenue by the forward multiple. But, how does the market set the multiple? What predicts the forward multiple, or correlates with it?

I pulled together the data for the basket of the roughly 60 publicly traded SaaS companies and ran a linear regression to understand the predictive power of the many key metrics reported by public companies.

The Economist ran a story about the future of work this week. Working remotely, we have reduced meeting length by about 15% and increased our total time at work by 2 hours per day. We might declare we have found an extra 10 hours in the workweek from nothing.

This productivity boost might seem universally positive, but there’s a catch. One of the critical topics in many boardrooms today is managing employee burnout. Sheltering-in-place, managing schooling, healthcare for elderly family members are just a few things that have become more difficult. Working longer hours while managing these stressors may compound the exhaustion.

Many companies today pursue a pincer GTM. First, target the individual user and then convince the economic buyer, typically a manager, director, or VP depending on the scale. Two constituents in the sales motion, but only one website raises a conundrum. Who do you serve on the home page?

Technical products often face this two persona quandary. And it surfaces on the website because of the constraint of a single home page.

Where is the SaaS world relative to how far it can go? With valuations of as-a-service companies and all-time highs or close to it, and more and more startups leveraging this model to serve an ever-larger number of consumers, I wondered how much more business is there to capture?

Let’s try to estimate. We do have enough data to get a sense of total as a service penetration. Last year, Zylo published a study suggesting that the average business spends about 10,000 dollars per year on as-a-service (aaS) software.