A founder-led SaaS company's valuation is driven by ARR and its growth, net revenue retention, gross margin, growth efficiency, customer concentration, the ownership and quality of the code, and key-engineer dependence. Retention-strong, high-margin, growing SaaS trades on a multiple of ARR; slower or services-heavy software trades on earnings.
ARR that is actually recurring
Buyers separate subscription revenue from services, one-time and usage revenue. ARR booked as recurring that is not gets restated, and the multiple applies to the smaller number.
Net revenue retention
Revenue from a customer cohort a year later, after churn and expansion. Above one hundred percent means the base grows on its own. It is the metric buyers weigh most heavily after growth.
Gross margin
Hosting, support and services costs against subscription revenue. Software margins earn software multiples; services margins do not.
Growth efficiency
What it costs to acquire a dollar of new ARR and how fast it pays back. Efficient growth is worth more than fast growth.
Ownership and dependence
IP assignment from every founder, employee and contractor; open-source license exposure; whether one engineer holds the system in their head. Buyers price the risk they cannot transfer.
Revenue or EBITDA
Growing, retention-strong SaaS with software margins is valued on ARR. Profitable, slower software with services revenue is valued on earnings. Many founder-led companies sit between and get both views.
Black Key Holdings builds and operates software. We prepare software companies the way a technical acquirer evaluates them, and we occasionally acquire them ourselves, in which case we say so and step out of the advisory role.
