# When Should You Sell Your B2B SaaS?

*January 25, 2023*

Deciding when to sell your B2B SaaS company is a critical decision. This article provides guidance on determining the right time to sell your business in order to maximize its value.

The fundamental guidance on timing a B2B SaaS exit centers on three principles: selling at peak valuation, securing the highest possible offer, and capitalizing on favorable market conditions.

## Understanding Your Buyer Hierarchy

There are four categories of potential acquirers, ranked by their typical willingness to pay:

1. Search funds and individual buyers
2. Small and medium-sized private equity firms acquiring standalone companies
3. Larger PE funds purchasing as platform add-ons
4. Fortune 500 companies and major strategic buyers

Higher-tier buyers command greater resources through established customer bases, complementary product portfolios, developed sales infrastructure, marketing capabilities, capital reserves, and brand strength. This explains the significant valuation gap between categories.

## Key Value Drivers

Four primary factors determine SaaS valuation multiples:

- **Growth rate:** The dominant value driver, with below-20% annual growth creating significant challenges
- **Profitability:** Preferred but not essential if strong growth exists
- **Annual Recurring Revenue (ARR):** Larger bases typically attract higher multiples
- **Customer churn:** Lower rates substantially increase enterprise value

## Market Timing Reality

The conventional wisdom about catching market peaks can be misleading. Using 2021-2022 as a case study, accepting a lower multiple during market downturns may actually prove more advantageous. Since founders typically reinvest proceeds into public SaaS equities — which correlate with private market valuations — buying these assets at depressed prices during market corrections often generates superior long-term returns than achieving higher exit multiples during peak cycles.

## The Decay of Growth

Growth naturally decelerates in B2B SaaS companies, following patterns where subsequent-year growth typically reaches approximately 85% of prior-year rates. Sustained expansion requires continuous innovation: new products, sales channels, partnerships, and marketing initiatives.

Because growth dominates valuation calculations, enterprise value peaks before ARR reaches its maximum. Founders commonly miscalculate by holding longer to achieve higher revenue thresholds, ultimately realizing substantially lower valuations. The optimal exit window occurs while meaningful growth momentum remains, before founder fatigue limits the capacity to pursue additional growth avenues.

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**Want to discuss optimal timing for your exit?** Reach out to [einar@discretioncapital.com](mailto:einar@discretioncapital.com) or [schedule a call](https://discretioncapital.com/contact).