What Is My Tech Startup Actually Worth?

So, you're thinking about selling your SaaS startup. Before you even get to the formal part of the acquisition process, where buyers will definitely demand a professional valuation, you need a number. This isn't the final price tag, but rather a well-reasoned estimate to get the conversation started and pull serious buyers in.

Getting this right is a delicate balance. Price it too high, and you’ll scare off investors. Price it too low, and you leave money on the table. The key is to do your homework so you can land on an evidence-based number that gets your foot in the door and keeps it there. When you estimate your value correctly, you not only bring more buyers to you but also walk into negotiations from a position of strength.

The Basic Formula for Valuation

Every valuation, no matter how complex, starts with a pretty simple formula. You’re essentially applying a multiplier to your company’s current earnings or revenue.

Let's break down what goes into each part of that equation.

First, Pin Down Your Earnings

Because every is different, you need to choose the metric that best reflects your business's financial health.

For Small, Owner-Run Businesses: SDE

If you’re the primary person running your small business, you’ll want to use Seller Discretionary Earnings (SDE). Think of this as your profit after you’ve paid all the operating expenses and costs, but with one key difference: you add your own compensation back into the final number.

Why do that? Because when you’re the owner and operator, your salary is often just a way of taking profits out of the business for tax or capital advantages. Adding it back in gives a potential buyer a much clearer picture of the company's true earning potential. This is a common metric used when a project moves from a .

Here’s how you calculate it:

For Larger Businesses with a Team: EBITDA

Once your company grows and you bring on a management team, the calculation changes. Your compensation is no longer just a stand-in for profit; it’s a real operating cost, just like your other expenses.

In this case, you’ll apply the multiple to your EBITDA, which stands for Earnings Before Interest, Taxes, Depreciation, and Amortization. There are a couple of ways to calculate it, and as long as you’re consistent, you can use whichever one gives a more accurate view of your earnings:

When You're Focused on Growth: Revenue

What if your SDE or EBITDA is zero? That’s actually pretty common for a that’s investing every spare dollar into growth. Many SaaS businesses knowingly take short-term losses to focus on product development and aggressive marketing, planning to pull back on those expenses later as they scale.

If this sounds like you, consider applying the multiple to your revenue instead. But be prepared: you have to prove that your growth strategy is working. Without solid projections, market research, and other evidence to back up your claims, a revenue-based valuation can fall apart quickly.

The Art of Choosing a Multiple

Figuring out your earnings is the easy part; you can pull SDE, EBITDA, or revenue from your financial statements in minutes. The multiple, however, is far more subjective. It’s not a fixed number but a reflection of countless business, market, and performance factors.

For a little context, a Crunchbase report looking at public SaaS companies between late 2014 and late 2018 found a median multiple ranging from 4.43 to 9.32. That’s a huge spectrum, and your job is to figure out where your business lands.

To justify a number on the higher end of that range, your startup should:

• with very little direct involvement from you.
• of operating successfully for over a year (the longer, the better).
• . This is where many shine.

To prove that third point, you’ll need to look at a few key success metrics.

Key Metrics That Drive Your Multiple

Churn measures the income you lose when customers cancel or downgrade their subscriptions. If you start the month with 1,000 customers and end with 900 (after accounting for new sign-ups), your churn rate is 10%. It’s a powerful indicator of customer loyalty and product quality. To make it meaningful, compare your churn rate to the industry average. A lower-than-average churn—or better yet, negative churn—will push your multiple up.

How much are you spending to land each new customer? Burning through cash to win business is a strategy with a very short shelf life. Investors and buyers are wary of high CAC, so if yours is on the steep side, you’ll need a very good reason to justify it and keep your multiple from taking a hit.

A high LTV can be the justification for a higher CAC. It helps you target the customers who will deliver the best long-term returns. For example, it might make sense to spend more to acquire customers who consistently upgrade or buy add-on services because their overall value is so much higher.

These three metrics don't exist in a vacuum. You have to look at churn, CAC, and LTV together to get a complete story of your business’s health and growth potential.

Tying It All Together

Once you've worked through these steps, you’ll have a defensible estimate of your startup’s value. Here's a quick review of the process:

1. For most small, owner-run businesses, SDE is the way to go. If you're larger with a management team, use EBITDA. If you’re a high-growth, pre-profitability business, use revenue.
2. Start with industry reports to find a range, then use your success metrics (churn, CAC, and LTV), business age, and operational independence to pinpoint where you fit.
3. This gives you the number you can use to start conversations about or an acquisition.

Be ready to explain how you got your number. Buyers will likely challenge your assumptions, but because you’ve done the work, you’ll be able to defend your position with data. The more transparent and data-driven you are, the more confidence you’ll have in your final figure—and you might just find that the professional valuators agree with you.