Value Determinants in Seed Stage SaaS Valuation : Main value determinants to consider when conducting a valuation of a seed stage SaaS company

Abstract: One of the single biggest challenges for start-ups is to find the necessary funding to achieve growth. Software-as-a-service (SaaS) companies are no different and rely on seed stage investments to build and develop a service in order to acquire paying customers. Given the need of external investments, SaaS companies heavily depend on their valuation for each given investor. The purpose of this study was to investigate the main value determinants for seed stage SaaS company valuations. Hence, the research question at issue was “What are the main value determinants for seed stage SaaS company valuations?”. This study was delimited to seed stage SaaS companies with a business to business (B2B) service offering in Sweden. This qualitative research was carried out through semi-structured in-depth interviews with seed stage SaaS B2B founders and investors operating in Sweden. The primary results of the qualitative research show that the main value determinants can be divided into three main factors. Firstly, external factors, such as the region, industry, and market that the company is operating within. Secondly, company factors include team and founder characteristics, firm characteristics, SaaS metrics and financials, and partnership and alliances. Thirdly, investor factors, including investor type as well as reputation and value-add. Following the findings, similarities and differences with literature were discussed. Based on the results, a revised framework including the main value determinants for seed stage SaaS company valuation was developed. The conclusion of this study is that seed stage SaaS company valuations vary among investor types. The valuation tends to not be bound to a specific valuation method, but rather a process where an overall evaluation is made from a set of criteria, which leads up to the valuation process where the final valuation is set.