How it's calculated
Software companies are most often valued as a multiple of revenue. Public cloud companies are compared on enterprise value (market capitalisation plus debt minus cash) divided by the revenue analysts expect over the next twelve months (NTM). Because investors pay far more for fast growth, the multiple depends heavily on the growth rate.
The calculator uses the median EV/NTM revenue multiples of public cloud software companies by expected growth, as published weekly in Jamin Ball's Clouded Judgement newsletter.Clouded Judgement It takes your ARR, grows it by your expected growth to estimate next-twelve-month revenue, and multiplies by the median for your growth group. As a cross-check, Bessemer's Nasdaq Emerging Cloud Index shows the average revenue multiple of the companies it tracks.Bessemer Venture Partners
The formula
- Next-12-month revenue = ARR × (1 + expected growth)
- Multiple = median EV/NTM revenue for companies in your growth group
- Enterprise value = next-12-month revenue × multiple × (1 − private-company discount)
- Equity value = enterprise value − debt + cash
Worked example
A company with $10 million of ARR expecting 25% growth has about $12,500,000 of next-twelve-month revenue. At the median multiple for its growth group, 18.7×, that is an enterprise value of about $233,750,000. At 12% growth, the same company falls into the slowest group and is valued at $41,440,000.
| Line | Value |
|---|---|
| Next-12-month revenue: ARR × (1 + 25%) | $12,500,000 |
| At 3.7×: under 15% expected growth | $46,250,000 |
| At 7.3×: 15% to 22% expected growth | $91,250,000 |
| At 18.7×: over 22% expected growth | $233,750,000 |
| At 4.5×: all tracked companies | $56,250,000 |
Assumptions and limitations
- Medians on one date. Multiples change with markets every week; the date of the figures is shown under the result.
- Growth is not the only driver. Net revenue retention, gross margin, profitability and the predictability of growth move a company well above or below its group's median.
- Public vs private. Private companies are usually valued below public peers, while acquirers sometimes pay a premium. Use the discount field to reflect that.
- Not an offer or a formal valuation. For a transaction, get advice from people who know your market.