By Lou Sokolovskiy

A major study finds that over the past ten years valuations of Software-as-a-Service (SaaS) companies have traced a dramatic arc—from exuberant highs to sobering corrections—mirroring the broader turbulence of financial markets and shifting investor expectations.

“Our proprietary Aventis SaaS index peaked at more than 700 points (100 = January 1st, 2015) in early 2021,” read the study published by Aventis Advisors on July 16, adding that the peak was fueled by historically low interest rates and pandemic-driven digital adoption. But as soon as the interest rate hikes started in early 2022, the index started to decline. 

“Since its peak, the Aventis SaaS index has decreased by more than 60%,” the report read. 

Public market SaaS valuations over the past decade. Source: Aventis Advisors

This reversal of fortune played out in stark terms. Public market revenue multiples—often used as a shorthand to assess valuation—more than doubled during the boom. In April 2020, the report found, the median multiple of their index was 9.8×. By the end of the year, it almost doubled to 20.0×. Yet just two years later, that figure had collapsed. 

“By the beginning of 2023, the median revenue multiple declined to 6.7x,” the report read.  

At the peak of the frenzy, valuations bordered on surreal. Asana, a popular workplace collaboration platform, was trading at “an incredible 89.0× LTM Revenue on November 9, 2021.” But as economic conditions shifted, investor tolerance for sky-high revenue multiples began to erode.

Falling Growth, Rising Discipline

One key reason for the downturn, the report suggests, was the tapering of growth that once seemed inexhaustible: “By Q3 2020, a median SaaS company’s revenue growth slowed to 20% YoY and was on a clear downward path.”

But that momentum proved unsustainable. “SaaS revenue growth rates continued to deteriorate reaching a median of 13% in Q1 2025 with expected forecasts continuing to fall at least until Q3 2025,” the report added. 

Profitability, once dismissed as secondary to growth, has moved to the center of investor focus. 

“For most of the past three years, a median public SaaS company operated with an 8-14% net loss,” the study found. This was an era when a zero-interest environment allowed many SaaS companies to run unprofitable business models.

But by 2023, patience wore thin as “yields on short-term Treasuries were over 5%,” prompting a market-wide shift in expectations.

Companies responded. By the first quarter of 2024, the median EBITDA margin reached 7% and net income margins approached breakeven. Still, profitability improvements have slowed down in 2025, a signal that the easiest gains may already have been achieved.

The Rule of 40 and the Power of Balance

Throughout this volatility, one metric has remained surprisingly resilient: the Rule of 40. The heuristic, which adds revenue growth to profit margin, is viewed as a gauge of financial health. Aventis says that it now correlates closely with valuation.

“A 10% increase in the Rule of 40 score corresponds to about 2.2× growth in revenue multiple.” In other words, the market continues to reward a balanced approach.

Bigger companies like Adobe and Descartes Systems Group—described as examples of companies that “exceeded the Rule of 40 with a comfortable margin”—have weathered recent years more effectively than flashier, fast-growing firms that fell out of favor as conditions changed.

A Private Market Apart

In contrast to public market drama, private SaaS valuations have remained relatively steady. Based on an analysis of 398 M&A deals, Aventis found that median revenue multiples have hovered around 5.0× for the past decade, with top-quartile transactions reaching above 9.1×.

Still, larger deals command premiums. In the $50–100 million EV bracket, companies are valued at almost twice the multiple of companies valued at $20–50 million, the study finds, citing public comparables, scalability, and acquisition synergies as contributing factors.

Notably, the once-wide valuation gap between cloud-based SaaS and traditional on-premise software has narrowed. As legacy software providers have adapted to cloud delivery models, the report finds that SaaS premium has decreased from 40% to around 27% in 2024. 

Looking Ahead: AI as a Catalyst

What’s next for SaaS companies navigating a new financial landscape? Aventis is cautiously optimistic, pointing to a “lower interest rate environment and record high dry powder” as factors that could reignite dealmaking and growth.

Artificial intelligence is also expected to play a defining role in the next phase of SaaS development. The report argues that generic AI integration won’t be enough. 

“SaaS companies with proprietary or in-house AI integrations will command higher premiums, reflecting the market’s growing appetite for advanced technology stacks and adapting to newer trends such as M&A in AI,” the report concluded.

A Delicate Equation

In an era of investor caution and economic complexity, the message from Aventis is clear: growth alone no longer justifies aggressive valuations. The premium now goes to those who can balance ambition with financial fundamentals.

“Getting the valuation of your SaaS business right can make or break once-in-a-lifetime decisions like a company sale or a significant capital raise,” the author of the report Filip Drazdou wrote. 

As SaaS enters its third decade, the sector faces a new equation—one where efficiency, not exuberance, is the price of admission.

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July 2025