I'm trying to compute a future value for my SaaS company for my financial projections. Can anyone help me find what to use as an earnings multiple?

In short, someone was willing to pay $16bn, therefore it's worth $16bn. Trying to tie intrinsic value to private companies is tough, and doesn't follow a logical path. If you look at Facebook's angle, it becomes pretty clear: When you have 1 billion users, but still want to grow, you have to pay for it. FB looked at the WhatsApp acquisition purely from a user acquisition perspective, they paid $45 per user, which is a justifiable fee on their end. What makes it crazy is there were a lot of users involved. Because Facebook has become a mobile app company, and WhatsApp adds to the company portfolio, it makes long-term sense. Additionally, much of WhatsApps user base was international, which is a huge untapped chunk of the world for Facebook. Acquiring WhatsApp allowed FB to make a big international splash in no time.

As you may know, we acquired Clarity recently and have done numerous acquisitions at Startups.co so we spend a lot of time thinking about this. I've also personally been acquired a few times so I've been on both sides. With that said I think the earlier comment about how much value you can bring to the acquirer is always a great place to start. For example, if your company had $100k in sales per year, no reasonable multiple of that is going to get you into a meaningful acquisition price. So scratch that. Instead - try to determine what kind of revenue the acquirer might generate in the first and second year post acquisition. That at least gives you a starting point. What you can't do is start thinking about what Instagram sold for. None of that type of silly math matters. Those are one of conditions where a company is in such hot demand is so singular in it's value (no one else was that big at that time in that particular segment) that they play by entirely different rules. What's nice about the 'what value can we bring' discussion is that it shows that you are thinking about what's in it for them, not just what's in it for you.

SOM refers to the portion of the market that your business COULD actually capture, as you stated: "[the] % [you] can realistically achieve from the SAM." Let's use an analogy to break this down - and pretend you are talking about fishing instead of project management software. TAM refers to all the fish (that manage projects) in the sea. SAM are all the fish (that manage projects) within casting range of the dock you fish from (ie your solution is viable for them). SOM are the number of fish (that manage projects) you can reasonably catch within the amounts of time, energy, and bait you can allocate to fishing. The question within a question you ask about guidelines on believability is a great one. And, while I don't have a guideline or benchmark to share, I can confirm your instinct; ensuring that your projected SOM is reasonable is absolutely critical. The best way to project this is by having at least some of the equation variables grounded in reality - ie, actually catching some fish. If you can show how much it costs to acquire a customer, how much it costs to service that customer, and how much you'll make from that customer over a lifetime, you've got some great empirical evidence to show how you'll achieve growth within your SOM. I don't think of SOM as a target - it is rather the theoretical maximum number of customers or revenue I can achieve within the (sub)universe where my product or service adds value. In the end - the number is important - but not as important as how you present it, and how you'll approach it with your product. As an investor, you want to see more than just the answer - you want the thought process behind the answer. Was the founder thoughtful in their approach, did they look beyond the obvious while remaining pragmatic? Do they understand clearly why the SAM (macro-environment) and SOM (micro-environment) break out of the TAM in the proportions they've listed? More than happy to dive deeper on this.

Don't Outsource. Period. While there are big drawbacks with outsourcing related to building internal expertise the real reason I would never outsource at your stage is the need for speed and flexibility. Per your description, you are an early stage start-up with a MVP that is gathering data. Congratulations as that is a big accomplishment! However, you inevitably have a ton to learn about what your prospective customers need most and what customers deserve your attention most. The means you will be tweaking your product constantly for the foreseeable future and having to submit ideas to an outsourced team, make sure they understand what you want, wait for the new feature to be scheduled, etc is just too slow and too expensive. You should have your developers literally sitting next to you and (if you have one besides yourself) your product person so you can quickly and constantly share information. Good luck! You are in for a fun ride...

There are three questions here: - the strike price of the options - the market value of the company - how much those options are actually worth to the recipient 1. The strike price is the price people pay to exchange their options for shares. You can set any strike price you like: it's just a negotiable contract term. However, if the strike price is less than the market value of the shares, the options are taxable (which people tend to avoid), so you typically set the strike price at or above the market value. 2. The market value of the company is how much the company is worth. The celebrity of the founder is clearly a big part of it. If the company were sold, the acquirer would want the founder to lock in as part of the acquisition. So figure out the value a couple of ways: (1) off standard profitability metrics: X times yearly profit and/or revenue vs. comparable companies (2) off the acquisition price: with and without the founder and add the percentage chance the founder would go with it (3) off recent transactions in the stock (what people pay for the stock is a great indicator of value) These will give three different answers: pick some sort of average number, so you can justify your strike price. 3. What the options are worth to the recipient: remember they are only worth something if the recipient can exercise them for stock, and then sell the stock (or receive dividends) for more than the option's strike price. So figure out the probability of the company being sold above the strike price in the next X years, and what an weighted average expected sale price is for the company in the next few years (noting the founder's importance), and that's what the options are worth. I hope that helps.