Every week I’ll provide updates on the latest trends in cloud software companies. Follow along to stay up to date!
M&A Sweet Spot
We’ve seen quite a bit of M&A (and rumored M&A) so far this year
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Wiz acquired by Google for $32B
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Ampere Computing acquired by SoftBank for $6.5B
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Moveworks acquired by ServiceNow for $2.9B
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Derbit acquired by Coinbase for $2.9B
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NextInsurance acquired by Munich Re for $2.6B
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Weights and Biases acquired by Coreweave for $1.7B
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NinjaTrader acquired by Kraken for $1.5B
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DataStax acquired by IBM. Price undisclosed but sounds like >$1B
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Protect AI acquired by Palo Alto. Price undisclosed but sounds like $500m – $1B
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RUMOR: OpenAI buying Windsurf for ~$3B
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RUMOR: Databricks buying Neon for ~$1B
What’s nearly consistent across all of these, is they fall in the $1B – $5B range. Everyone seems ready for “M&A to explode!” for many reasons. New administration, pent up demand, incumbents sitting on large cash piles, etc. However, I think we’ll see a bar belled approach to M&A. Much smaller tuck in style deals <$100m, and then larger (but not too large) strategic acquisitions. And every know and then we’ll see a Wiz.
It’s important for startups to consider this when raising money, especially AI startups with a lot of buzz. There will continue to be (I believe) appetite for deals in the $1B – $5B range, but above that the frequency of deals will drop off dramatically. There simply aren’t as many buyers who can pay those kind of prices. So why is it important for startups to keep this in mind? When raising rounds at multi-billion dollar valuations, there are implicit “bets” you are making as part of that. You don’t want to “shut out” the exit path of a $1-$5b acquisition if you’re not certain you can make it past that. In the public markets, there are very few companies trading >10x revenue. So the bar to being a >$5b public company is >$500m in revenue. If you’re at $20m of ARR today and offered a round at $2B, it’s important to remember the bets you’re making! VCs get to place a number of bets (sometimes option betting…). For founders and employees, they get to make one bet.
Full Year Guides
Coming into Q1 earnings season, I was definitely worried the big risk was companies tanking their full year guide given all of the macro uncertainty. So far, we haven’t seen that. The chart below shows how full year 2025 guides on the Q1 ‘25 call compared to full year 2025 guides on the Q4 ‘24 call (1 quarter ago). As you can see, most companies are either holding their guide constant, or raising their full year guide. Only 17% have lowered their full year guide.
Quarterly Reports Summary
Top 10 EV / NTM Revenue Multiples
Top 10 Weekly Share Price Movement
Update on Multiples
SaaS businesses are generally valued on a multiple of their revenue – in most cases the projected revenue for the next 12 months. Revenue multiples are a shorthand valuation framework. Given most software companies are not profitable, or not generating meaningful FCF, it’s the only metric to compare the entire industry against. Even a DCF is riddled with long term assumptions. The promise of SaaS is that growth in the early years leads to profits in the mature years. Multiples shown below are calculated by taking the Enterprise Value (market cap + debt – cash) / NTM revenue.
Overall Stats:
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Overall Median: 5.3x
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Top 5 Median: 20.4x
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10Y: 4.4%
Bucketed by Growth. In the buckets below I consider high growth >27% projected NTM growth (I had to update this, as there’s only 1 company projected to grow >30% after this quarter’s earnings), mid growth 15%-27% and low growth <15%
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High Growth Median: 16.3x
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Mid Growth Median: 9.3x
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Low Growth Median: 4.0x
EV / NTM Rev / NTM Growth
The below chart shows the EV / NTM revenue multiple divided by NTM consensus growth expectations. So a company trading at 20x NTM revenue that is projected to grow 100% would be trading at 0.2x. The goal of this graph is to show how relatively cheap / expensive each stock is relative to their growth expectations
EV / NTM FCF
The line chart shows the median of all companies with a FCF multiple >0x and <100x. I created this subset to show companies where FCF is a relevant valuation metric.
Companies with negative NTM FCF are not listed on the chart
Scatter Plot of EV / NTM Rev Multiple vs NTM Rev Growth
How correlated is growth to valuation multiple?
Operating Metrics
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Median NTM growth rate: 11%
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Median LTM growth rate: 15%
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Median Gross Margin: 76%
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Median Operating Margin (6%)
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Median FCF Margin: 17%
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Median Net Retention: 108%
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Median CAC Payback: 44 months
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Median S&M % Revenue: 39%
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Median R&D % Revenue: 24%
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Median G&A % Revenue: 16%
Comps Output
Rule of 40 shows rev growth + FCF margin (both LTM and NTM for growth + margins). FCF calculated as Cash Flow from Operations – Capital Expenditures
GM Adjusted Payback is calculated as: (Previous Q S&M) / (Net New ARR in Q x Gross Margin) x 12 . It shows the number of months it takes for a SaaS business to payback their fully burdened CAC on a gross profit basis. Most public companies don’t report net new ARR, so I’m taking an implied ARR metric (quarterly subscription revenue x 4). Net new ARR is simply the ARR of the current quarter, minus the ARR of the previous quarter. Companies that do not disclose subscription rev have been left out of the analysis and are listed as NA.
Sources used in this post include Bloomberg, Pitchbook and company filings
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