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Enterprise Startups

The SaaS Startup Valuation Gap

In the past two weeks, the sinking prices of publicly traded subscription software stocks like LinkedIn and Box have had an interesting effect on privately held firms. All of a sudden, startup valuations that looked reasonable over the past two years look like a stratospheric premium compared with public markets.

Take Domo. It helps businesses slice and dice data into useful charts. Domo itself said last April that its valuation was $2 billion, though it did not say whether that valuation was before or after the $200 million round of financing that it also raised at that time. But in September, firms like BlackRock shed some light on how they valued shares. BlackRock said they used a multiple of 7.5 to 15.75 of expected revenue, which they estimate will grow 159 percent, according to public filings.

That may have been reasonable when firms like Salesforce and Workday where trading at revenue multiples of between six and 12 last year. But today those stocks are currently trading at around five times expected revenue. (LinkedIn and Box are at less than three times.)

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