I think many investors have used subscription and SaaS as an indicator of 'high margin predictable future revenue.' A company with high margin revenue (gross margin) is preferred to low margin and predictable revenue is preferred to unpredictable. Basing valuations on AR multiples seems to me like a very old fashioned way to think. We now have the tools readily available to build much better predictive models. Relying on ARR models seems lazy to me and a poor predictor of future enterprise value. If one does not want to build a predictive model for every opportunity (someone will offer that as a service at some point in the near future) a percentage of net customer lifetime value seems like a much better indicator of future value. By net, I mean net of cost to serve.
I think many investors have used subscription and SaaS as an indicator of 'high margin predictable future revenue.' A company with high margin revenue (gross margin) is preferred to low margin and predictable revenue is preferred to unpredictable. Basing valuations on AR multiples seems to me like a very old fashioned way to think. We now have the tools readily available to build much better predictive models. Relying on ARR models seems lazy to me and a poor predictor of future enterprise value. If one does not want to build a predictive model for every opportunity (someone will offer that as a service at some point in the near future) a percentage of net customer lifetime value seems like a much better indicator of future value. By net, I mean net of cost to serve.