Public SaaS companies have rapidly shifted towards efficiency. Forward growth rates have come down dramatically, and free cash flow margins have risen across the board. Put simply, companies are trading growth for profitability in today’s market.

Should SaaS companies trade at a 24x Enterprise Value (EV) to Next Twelve Month (NTM) Revenue multiple as they did in November 2021? Probably not and we think 10x (May 2022) seems more in line with the historical trend.

Anecdotally, we have seen a surprisingly consistent pattern in the financial data of AI companies, with gross margins often in the 50-60% range – well below the 60-80%+ benchmark for comparable SaaS businesses. Early-stage private capital can hide these inefficiencies in the short term, especially as some investors push for growth over... See more