Jason Lemkin has written an excellent post pointing out that a major drop in public market valuations is about to affect SaaS startups:
Lemkin points out that major SaaS players like Workday and Cornerstone have fallen by nearly 50% since February 2014, and predicts that early-stage startup valuations will plummet.
Bad news? Maybe. But I prefer to focus on a paragraph tucked in amongst the carnage:
"We’re still just in the second inning of the migration of all business
process to SaaS. It’s just getting good. Even if valuations fall 50% …
as long as you grow 10x in a few years … you’ll still be up 5x by then.
For SaaS start-ups, falling valuations, at least on paper, really only
mean it will take a little longer to grow into your next target
Ultimately, multiples do affect the value of your company. But there are two factors in the Price/Sales ratio that drive the value of your startup--the multiple is one, but the actual sales is the other, far more important factor.
If you build a profitable company that generates $100 million in revenues, the final multiple isn't that important, especially if you're building for the long term.
So let the fund managers worry about the multiples--you should worry about the business.