Gurley criticizes price-to-revenue multiples as the crudest possible valuation tool for evaluating companies.
“price to revenue is like this really crude valuation tool, it's like the crudest you could possibly have.”
Gurley lists specific new scrutiny metrics buyers now apply to SaaS companies beyond crude price-to-revenue multiples.
“what really values companies, you know, it's typically a discounted cash flows and so now all of a sudden the buy side's asking SaaS companies about net dollar retention, about long term operating margin, about whether their free cash flow is greater or less than their net income, about SBC as a percentage of free cash flow.”
All-In Podcast
“And so what really values companies, you know, it's typically a discounted cash flows. And so now all of a sudden, the buy side's asking SaaS companies about net dollar retention, about long term operating margin, about whether their free cash flow is greater or less than their net income, about SBC as a percentage of free cash”
Gurley cites twelve-year bull run and extreme SaaS multiples as major IPO incentives.
“Add into that a roaring, screaming public market that's been on a bull run for, what, twelve years? And multiples in the public markets, especially in, the SaaS world that are out of this world.”
Gurley explains why targeting sales instead of HR made Salesforce wildly more successful than their HR SaaS company.
“the sales executive has a green light on any purchase in a company. The HR executive does not. They had a product where you could put it on a credit card.”