Research · Scenario engine
SaaS valuation, decomposed
Every SaaS valuation rests on three components: the cash-flow base it generates (the numerator), the discount rate applied to it (the denominator), and the duration — how many years of high-growth cash flow the market still trusts before fade. Hold two fixed, move the third, and watch the price. Then move them together: the price moves on all three axes at once, and the combined isn't the sum of the parts — each shock lands on a base the others have already moved. That compounding is the second leg.
The price moves on all three axes at once — the “multiplicative, not additive” point. The interaction term is the compounding residual: each shock lands on a base the others have already moved, so the combined is the product of the parts, not their sum (and for large simultaneous cuts the parts partly overlap).
Key readings (representative SaaS book)
- −4.5% — a 25 bps rise in the 10-year, everything else held.
- −12.5% — a two-year cut to the trusted-growth window, rates and earnings held.
- −23.0% — +75 bps and a two-year duration cut together.
- −62.4% — the full "Leg 2: trust 2 years" scenario.