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Course and conference material. The US has some of the most advanced software and IT companies in the world, making it one of the largest hubs for SaaS companies. There are more than , software and IT service companies in the US with about 40, tech startups that were established in itself.

Valuation for SaaS companies is just as important as the valuation for any other company. If someone wants to purchase a company, how will they know what the worth of the company is without a valuation? As a matter of fact, getting a software company valuation is not that easy.

It involves a lot of technical work. For us to get the value of a company right, an extensive-financial knowledge is needed. They would also have to look into other things like the market of the company and the corporate strategy, along with all the factors that create value for the company.

And looking beyond the traditional numerical due diligence parameters is what allows valuators to get the actual value of the company. This is the value that would help the seller negotiate a good amount from the buyer. Obtaining the value of the company also helps in obtaining funding from investors and is an important aspect when giving out options to employees. Before the appraiser begins the work to get the valuation of the IT company , the business valuation professional would first consider some parameters and metrics of the company.

These are important since they help in preparing the final value of the company. They include:. Considerations that can have a huge influence on the value of the company such as goodwill and other intangible assets are also considered. The competitive landscape of the industry, market position, diversity of the customer base, and the dependency on a key employee s or the owner are also considered.

Some of the other main things that are considered in the software company valuation include :. This will provide a practical example of how an actual software company valuation is conducted and what valuation analysts would consider. The company started in , and spent its time developing a cloud storage solution for companies. It launched its MVP in March Reception was quite slow at first, but grew slowly month by month, as over the last 2 years, the company has amassed around , users up until June From the table you can see that during the first 6 months , the number of monthly sign ups was less than But afterwards this began to increase and hit over 1, sign ups per month in March , a year after launch.

By June , they had around k users on their platform , with adding around 35k new users every month. After adding thousands of users every month and testing different strategies for their software solution, they set on a pricing policy that was accepted by their clients and fit within the market.

Their hard work was paying off, and they had started to make a great product that fit in the market. However they anticipated the need for more staff to help with the growth of the company, and decided to start hiring and set aside an employee stock option plan ESOP to attract and award their employees. Now with everything in place for new hires, they also decided to forecast what their future years would look like at such a growth in users and how much sales they could generate over the next 5 years.

This would help them with the development of the software, hiring plans for different positions, and number of hires to get to scale correctly. Thus they came together and created a basic sales forecast for the next 5 years. With this forecast in place and financial figures, the company decided to get a valuation done to see how to set the strike price for their new 50, stock options they plan to give their employees. There are three widely accepted methods to value a company namely, income , market , and the asset approach.

By using any one of these methods or a combination of these methods can help you in getting the final value of the company.

For conducting this saas valuation, we would need to conduct 5 steps, as in :. The income-based approach is used to value the software companies that are a going concern.



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