Comparable Company Analysis for E-commerce and SaaS Startups: Building a Defensible Valuation

How to Use Public Company Multiples for Startup Valuation

You are preparing for your next fundraising round. The pitch deck is nearly complete, but the valuation slide is a blank space causing a growing sense of anxiety. You have heard about using public company multiples for startup valuation, but the advice feels abstract and disconnected from your reality. How can the valuation of a public giant on a US or UK exchange possibly relate to your pre-seed or Series A SaaS or E-commerce startup? The process seems designed for investment bankers with expensive data terminals, not for a founder using QuickBooks and a spreadsheet.

This isn’t about finding a magic formula. It is about building a credible, data-informed narrative that justifies your valuation to investors. Using Comparable Company Analysis (CCA), or "comps," correctly provides a defensible starting point for that crucial conversation. It grounds your number in market reality rather than pure guesswork, showing investors you understand how businesses like yours are valued. While a DCF is an alternative at later stages, CCA is often the most practical method for early-stage companies.

The Startup Reality Check: CCA is an Art, Not a Science

For early-stage companies, the first challenge is identifying truly comparable public companies. Your scale, growth trajectory, and risk profile are worlds apart from an established public corporation. The immediate temptation is to find a public company that sells a similar product, but this is often a mistake. The lesson that emerges across cases we see is that comps should be based on business model, not just product similarity. An enterprise software company sold via a direct sales force has fundamentally different unit economics than a product-led growth (PLG) tool, even if they both operate in the HR tech space.

Your goal is not to find a perfect clone, but to build what is called a “defensible peer group.” This is a small set of companies that share your core operating DNA. Are you a B2B SaaS company with a high-touch enterprise sales motion? Then your peers are other companies with similar go-to-market strategies and average contract values, even if their software solves a different problem. Are you a direct-to-consumer e-commerce brand with a subscription model? Your peers are other companies that share that specific revenue model and customer acquisition strategy. What founders find actually works is focusing on these fundamentals, as they are the primary drivers of financial performance and, therefore, value.

Ultimately, this analysis provides a directional valuation range, not a single precise number. It’s a framework for thinking, designed to get you and your potential investors into a reasonable ballpark for negotiation. It signals that you are a thoughtful operator who understands the market context for your business.

Step 1: How to Find Your Public Peer Group for a Startup Valuation

Creating your peer group is a process of strategic filtering. You will not find a perfect match for your Series B startup, and that is okay. The aim is to assemble a small cohort of five to ten public companies that investors will agree are directionally relevant. Any more than ten, and your analysis can become diluted; any fewer than five, and a single outlier can dramatically skew your results.

Start your search using free, publicly available tools. Financial data websites like Finviz and Yahoo Finance have screeners that allow you to filter public companies by industry and sub-industry. This is your first cut. For example, you might start by screening for "Software—Application" or "Internet Retail" on a major US or UK stock exchange. This will give you a broad list to begin refining.

Next, narrow this list by focusing on the business model. Ask yourself these critical questions for each potential comparable:

• Revenue Model: Is the company primarily subscription-based SaaS, transactional e-commerce, a usage-based platform, or a marketplace taking a percentage of GMV? Match this first, as it is the most critical component influencing valuation multiples.
• Customer Type: Does it sell to large enterprises, small and medium-sized businesses (SMBs), or individual consumers (B2C)? A company with a high-volume, low-contract-value B2C model is a poor comparable for one with a low-volume, high-contract-value B2B enterprise model.
• Go-to-Market (GTM) Strategy: Is growth product-led, driven by a direct sales force, or reliant on channel partners? This directly impacts sales cycles, customer acquisition costs, and overall unit economics.
• Margin Profile: For e-commerce startups, look for companies with similar gross margins, as this reflects similarities in supply chain and pricing power. For SaaS companies, consider the cost of goods sold (COGS) structure, which can vary significantly between self-serve and enterprise solutions.

The reality for most early-stage startups is pragmatic: your list will be imperfect. You may have to include larger, more mature companies. The key is to be aware of these differences and prepare a clear rationale for why each company is on your list. This thoughtful selection process itself demonstrates rigor to investors.

Step 2: Getting the Right Data Without a Bloomberg Terminal

Once you have your peer group, the next step is to gather the financial data needed to calculate valuation multiples. This is where many founders assume they need expensive subscriptions, but the essential information is freely available if you know where to look.

Your primary source is the public filings companies submit to regulators. For US-listed companies, search the SEC EDGAR database. According to the SEC EDGAR database, "Public company financial and competition data can be found in S-1, 10-K (annual), and 10-Q (quarterly) SEC filings." You can search for these documents directly on the SEC's EDGAR website. For companies listed in the UK, you can find similar reports on the London Stock Exchange's website and through Companies House.

For a high-growth startup, historical performance is less relevant than future potential. Therefore, you should focus on forward-looking multiples. The most common and appropriate multiple for high-growth, often unprofitable, SaaS and e-commerce startups is the forward revenue multiple.

To calculate this, you need two key data points for each public comparable:

1. Enterprise Value (EV): This represents the total value of a company, including both its equity and debt. The "Formula for Enterprise Value (EV): Market Cap + Total Debt - Cash & Cash Equivalents." You can find the Market Cap on sites like Yahoo Finance. Total Debt and Cash are listed on the company’s latest balance sheet, found in its 10-K or 10-Q filing.
2. Next Twelve Months (NTM) Revenue: This is the consensus forecast of what Wall Street analysts expect the company to generate in revenue over the coming year. This forward-looking metric captures expected growth, which is critical for valuing startups. You can typically find this figure on the ‘Analysis’ or ‘Statistics’ tab for a given stock on Yahoo Finance.

With these two data points, you can calculate the multiple for each company. The "Formula for Forward Revenue Multiple: Enterprise Value / Next Twelve Months (NTM) Revenue." For a plain explanation of the EV/Revenue framework, see this EV/Revenue overview. After calculating this for each company in your peer group, determine the median multiple. Use the median, not the average, as it is less sensitive to extreme outliers.

Step 3: The Crucial Adjustment—From Public Hype to Private Reality

This is the most critical step, and the one most often missed by founders. You cannot take the median 10.0x NTM revenue multiple from your public comps and apply it directly to your startup’s revenue. Doing so ignores fundamental differences between a stable, liquid, public company and a high-risk, illiquid private startup. A scenario we repeatedly see is founders presenting an unadjusted multiple, which immediately undermines their credibility. You must apply a “private company discount” to bridge the gap from public hype to private reality. See Aswath Damodaran's guidance on valuing private companies for an academic perspective on this challenge.

This discount is typically composed of three distinct adjustments:

1. Growth Premium Adjustment: Public investors pay a significant premium for predictable, high growth at scale. While your startup’s percentage growth rate might be higher than a public company’s (growing from $1M to $3M is 200% growth), that growth is far riskier and less proven. You need to normalize for this difference in quality and risk. A good practice is to visualize the relationship between growth and multiple for your peer group, then determine where your startup realistically fits.
2. Scale & Profitability Discount: Public companies have diversified revenue streams, established brands, operational leverage, and a clearer path to profitability. Your startup is smaller, more vulnerable to market shifts, and is likely burning cash. This difference in scale and financial stability warrants a significant discount. In practice, we see that "A standard starting point for a Scale & Profitability Discount on public multiples is 20-30%."
3. Illiquidity Discount: An investor in a public company can sell their shares at any time. An investor in your startup is tying up their capital for a potential 5-10 year period with no guarantee of an exit. This lack of liquidity is a major risk and requires compensation in the form of a lower entry valuation. For this reason, "A standard starting point for an Illiquidity Discount on public multiples is 20-30%."

Let’s walk through a simplified example. Imagine your SaaS startup, with data from your accounting software like Xero or QuickBooks, is on track for specific revenue goals:

• Your SaaS startup’s projected NTM Revenue: $2,000,000
• Median NTM Revenue Multiple from your public peer group: 8.0x
• Incorrect Valuation (unadjusted): 8.0x * $2M = $16M

Now, let's apply the discounts in a sequential manner:

• Start with the Public Multiple: 8.0x
• Apply Scale & Profitability Discount (25%): 8.0x * (1 - 0.25) = 6.0x
• Apply Illiquidity Discount (25%): 6.0x * (1 - 0.25) = 4.5x
• Your Adjusted Private Multiple: 4.5x
• Defensible Valuation: 4.5x * $2,000,000 = $9,000,000

The resulting $9M valuation is a much more realistic and defensible starting point for investor negotiations. It shows you understand the unique risks and characteristics of an early-stage private company.

Practical Takeaways: Building Your Valuation Narrative

Learning how to use public company multiples for startup valuation is less about finding a perfect answer and more about mastering a communication tool. Your Comparable Company Analysis is the evidence you bring to the table to support your story. It is meant to create a credible, data-backed range that anchors the conversation with investors.

Remember these key principles. First, focus on building a defensible peer group based on shared business models, not just similar products. Your choices should be deliberate and justifiable. Second, use forward-looking metrics like NTM revenue, as they better reflect the growth potential that investors are buying into. Third, and most importantly, always adjust public multiples to account for the realities of a private startup. The discounts for scale, profitability, and illiquidity are non-negotiable.

Ultimately, valuation at the early stage is a negotiation. The analysis you perform in your spreadsheet is not meant to produce a final, unchangeable number. It shows investors you have done your homework, understand how markets value businesses like yours, and are approaching your fundraise with a grounded, professional mindset. This builds trust, which is the most valuable asset you have. For help on deal mechanics, see these valuation negotiation tactics and review the difference between post-money vs pre-money valuation. For a broader primer, return to the hub at Valuation Basics.

Frequently Asked Questions

Q: What if I can't find any good public comps for my startup?

A: This is common for innovative companies. In this case, you may need to look at adjacent industries with similar business models. You can also use private M&A transactions as a secondary data point (precedent transaction analysis), though this data is often harder to find and verify. The key is to be transparent about your methodology.

Q: Should I use other valuation metrics besides EV/NTM Revenue?

A: For early-stage, high-growth SaaS or e-commerce companies that are often unprofitable, EV/NTM Revenue is the standard. As companies mature and generate profits, multiples like EV/EBITDA become more relevant. Using a revenue multiple focuses the conversation on growth potential, which is what early-stage investors are primarily underwriting.

Q: How do I justify the specific discount percentages I choose?

A: The exact percentages are part of the negotiation. Citing standard ranges (e.g., 20-30% for illiquidity) is a good starting point. The best justification comes from a qualitative argument. Explain *why* your company's scale or risk profile warrants a particular discount relative to your public peer group. Transparency in your assumptions is key.

Q: Can I use private company valuations from recent funding rounds as comps?

A: Yes, this is a form of analysis known as precedent transaction analysis and can be very powerful. If you can find reliable data on recent, similar private funding rounds, it can provide a more direct benchmark. However, this data is private, difficult to verify, and may lack context, which is why public comps remain a common, accessible starting point.