Let's assume you're meaning an exit with a high multiple on returns, rather than an acquihire. In this case there are 2 models:
1) Game changing technology. These are very hard to measure, especially from the outside. You have to ask yourself, "Is this technology for real?" and "Could a large company monetize this?" This is what's happening in the autonomous car market. Let's step aside from this.
2) Companies that are growing well and fast on their own. In this case there are 3 metrics that matter: Revenue, Revenue Growth (new business minus churn) and Margins. Revenue is the base for valuation, and Growth and Margins determines the multiple. A weak rule of thumb that answers your question is that once a SaaS business hits 50mm in ARR, Growth Plus Margins should equal 50%. (It's ok to lose 10% of revenue in margins if you're growing 50% per year. If you're only growing 20% per year, you should have 30% profitability.) If it has this it's trending towards a positive exit.
Three caveats:
1) In case 2, if the company has external venture money, they are more likely to exit. (The VC funds need to return money to investors) If they are self-funded, they can stay private much longer.
2) Very few companies pull off the high multiple exit or IPO. It is hard to maintain growth, and hard to eventually turn a profit when you are growing fast.
3) There are a small subset of VC firms and specific VC partners with disproportionately outsized success. In the absence of other information, an investment by them is a good signal. (But smart money won't help a bad business)
Comments
Let's assume you're meaning an exit with a high multiple on returns, rather than an acquihire. In this case there are 2 models:
1) Game changing technology. These are very hard to measure, especially from the outside. You have to ask yourself, "Is this technology for real?" and "Could a large company monetize this?" This is what's happening in the autonomous car market. Let's step aside from this.
2) Companies that are growing well and fast on their own. In this case there are 3 metrics that matter: Revenue, Revenue Growth (new business minus churn) and Margins. Revenue is the base for valuation, and Growth and Margins determines the multiple. A weak rule of thumb that answers your question is that once a SaaS business hits 50mm in ARR, Growth Plus Margins should equal 50%. (It's ok to lose 10% of revenue in margins if you're growing 50% per year. If you're only growing 20% per year, you should have 30% profitability.) If it has this it's trending towards a positive exit.
Three caveats:
1) In case 2, if the company has external venture money, they are more likely to exit. (The VC funds need to return money to investors) If they are self-funded, they can stay private much longer.
2) Very few companies pull off the high multiple exit or IPO. It is hard to maintain growth, and hard to eventually turn a profit when you are growing fast.
3) There are a small subset of VC firms and specific VC partners with disproportionately outsized success. In the absence of other information, an investment by them is a good signal. (But smart money won't help a bad business)