# Benchmarking against the public SaaS index: multiples and medians
A board member asks you: "We're raising at 8x forward revenue. Is that cheap or expensive?" You have thirty seconds to answer. Without a public market reference point, you're guessing. With one, you're reasoning.
This lesson gives you that reference point: how to read public SaaS (Software as a Service, meaning software sold via subscription and delivered over the internet) index medians, and how to use them to sanity-check a private company's valuation.
Private SaaS companies don't trade daily, so they have no live market price. Investors and operators instead benchmark against baskets of comparable public companies (called "comps," short for comparables), then adjust for size, growth, and risk.
Two widely referenced trackers:
These aren't official government indices like the S&P 500. They're curated, actively maintained baskets built specifically to track software economics: revenue growth, margins, and the multiple investors pay for a dollar of recurring revenue.
The headline number in SaaS valuation is EV/Revenue, meaning Enterprise Value (market capitalization plus debt minus cash, representing the total value of the operating business) divided by annual revenue.
Formula:
EV/Revenue = Enterprise Value / Trailing or Forward RevenueSaaS companies are valued on revenue multiples rather than earnings multiples (like P/E) because most reinvest heavily and show thin or negative net income, especially pre-scale. Revenue is a cleaner proxy for size and durability given subscription contracts.
Worked example: A company has an enterprise value of $600 million and forward-year revenue of $75 million.
EV/Revenue = 600 / 75 = 8.0xThat's the multiple your board member quoted. Now you need a benchmark to know if 8.0x is rich or cheap.
As of early 2026, based on patterns from Bessemer's and Meritech's public trackers over 2024 to 2025:
Europe usually trades at a discount. Reasons cited by sell-side analysts and repeatedly discussed in industry commentary: smaller average company size, lower US institutional ownership, currency and cross-border friction, and historically lower revenue growth rates among listed European software names.
These numbers move with interest rates. When central bank policy rates rise, future cash flows are discounted more heavily, and high-multiple growth software compresses first, it happened sharply in 2022. Always check a current data source like Meritech's public comps before quoting a number in a live conversation.
Raw multiples mean little without growth and profitability context. The Rule of 40 is the sector's shorthand health check:
Growth rate (%) + Profit margin (%) ≥ 40%Where "profit margin" is usually free cash flowfree cash flowFree Cash Flow is the cash a company generates from operations after funding the capital expenditures needed to maintain and grow its asset base.View full definition → margin (free cash flowfree cash flowFree Cash Flow is the cash a company generates from operations after funding the capital expenditures needed to maintain and grow its asset base.View full definition → divided by revenue) or EBITDAEBITDAEBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) measures a company's operating profitability before financing and accounting decisions, used to compare core performance across firms.View full definition → margin (earnings before interest, tax, depreciation, amortization, divided by revenue), depending on the analyst's convention. Always check which one is being used before comparing companies.
Worked example: Your private company grows revenue at 30% annually and has a (negative) free cash flowfree cash flowFree Cash Flow is the cash a company generates from operations after funding the capital expenditures needed to maintain and grow its asset base.View full definition → margin of -5%.
30 + (-5) = 2525 is below 40. That's a caution flag, not a stock, but a signal that growth alone doesn't justify a premium multiple.
Public SaaS index constituents scoring above 40 (per Bessemer's published tracker methodology) have historically commanded meaningfully higher EV/Revenue multiples than sub-40 peers, often a 2x to 4x turn premium, estimate, because it signals a business that's growing without burning excessive cash.
Back to the opening scene. Your private company:
Against a US public median of roughly 6x to 7x (estimate) and a Rule of 40 threshold of 40, this company is trading at a premium multiple despite a below-benchmark efficiency score. That's a flag for a buyer: you may be paying growth-company pricing for a business that hasn't yet proven it can grow efficiently.
Against the European median of roughly 4x to 6x (estimate), the premium looks even larger.
The counter-argument a founder might raise: private growth-stage multiples aren't directly comparable to public ones because public comps include a liquidity discount adjustment in reverse, meaning private shares are harder to sell, so in theory they should trade *lower* than public peers for the same fundamentals, not higher. If your private deal is priced above the public median without a clear growth or margin edge, that's worth pressing on directly in negotiation.
Knowledge check
1. Why is a public SaaS index useful when evaluating a private company's valuation?
2. Why do SaaS companies typically get valued using EV/Revenue multiples rather than P/E (price-to-earnings) multiples?
3. A board member says the company is raising at 8x forward revenue and asks if that's cheap or expensive. What is the most reasoning-based way to answer?
4. Select ALL correct answers about the BVP Nasdaq Emerging Cloud Index and Meritech Capital's SaaS comps.
Select all the correct answers.
5. Select ALL correct answers about why revenue multiples are considered a useful proxy in SaaS valuation.
Select all the correct answers.
One more figure drives how public markets price SaaS: Net Revenue Retention (NRR), the percentage of revenue retained from existing customers over 12 months, including upsells and minus churn (customer cancellations) and downgrades.
NRR = (Starting Revenue + Expansion - Downgrades - Churn) / Starting RevenueWorked example: A cohort starts the year at $10 million in recurring revenue, expands by $1.5 million from upsells, loses $0.8 million to churn.
NRR = (10 + 1.5 - 0.8) / 10 = 10.7 / 10 = 107%Public SaaS index constituents with NRRNRRNet Revenue Retention measures the percentage of recurring revenue retained and grown from existing customers over a period, including upsell and expansion, net of downgrades and churn.View full definition → above 120% (best-in-class, estimate, common among top-tier US names like Snowflake or Datadog in past disclosed periods) typically command the highest multiples in the index. A broad public SaaS median NRRNRRNet Revenue Retention measures the percentage of recurring revenue retained and grown from existing customers over a period, including upsell and expansion, net of downgrades and churn.View full definition → is roughly 100% to 110% as of recent reporting cycles, estimate; anything below 100% signals customers are shrinking their spend over time, a red flag regardless of headline growth.
When you assess a private company, always ask for NRRNRRNet Revenue Retention measures the percentage of recurring revenue retained and grown from existing customers over a period, including upsell and expansion, net of downgrades and churn.View full definition → alongside the growth rate. A company growing 30% overall but with NRRNRRNet Revenue Retention measures the percentage of recurring revenue retained and grown from existing customers over a period, including upsell and expansion, net of downgrades and churn.View full definition → of 95% is growing entirely through new logo acquisition (new customer wins) while losing ground with existing customers, a much riskier growth profile than one with NRRNRRNet Revenue Retention measures the percentage of recurring revenue retained and grown from existing customers over a period, including upsell and expansion, net of downgrades and churn. above 110%.
🎬 [VIDEO: "SaaS Metrics That Matter" - youtube.com/@SaaStr - SaaStr's practitioner-level breakdown of Rule of 40, NRRNRRNet Revenue Retention measures the percentage of recurring revenue retained and grown from existing customers over a period, including upsell and expansion, net of downgrades and churn.View full definition →, and public comp benchmarking for operators and investors]