Why Revenue Growth Can Still Lead to a Lower Company Valuation

Revenue growth does not automatically produce a larger exit. Sagie’s central point is that enterprise value can decline when valuation multiples fall faster than operating performance improves. For founders and boards, the takeaway is practical: track valuation as a living metric, not just revenue, profitability or growth milestones.

The article uses an illustrative SaaS example to show the risk. A company with $15 million in annual recurring revenue valued at 6x ARR has an implied enterprise value of $90 million; if ARR later rises to $20 million but the multiple falls to 3.5x, enterprise value drops to $70 million. In that scenario, revenue rises 33% while value declines 22%, showing why waiting for the next milestone can still lead to a smaller exit.

Valuation multiples reflect more than top-line growth. Sagie identifies qualitative factors such as management quality, founder dependence, competitive intensity, product differentiation and strategic relevance to buyers. He also points to absolute financial measures such as revenue, EBITDA and cash flow, along with relative performance measures including growth, margins, net revenue retention and gross revenue retention.

Sagie argues that M&A preparation should begin while the company is performing well and buyer interest is favorable. A sale involves preparation, buyer engagement, negotiation and diligence, and buyers continue reassessing forecasts throughout the process. Boards should model scenarios where revenue grows while multiples hold, expand or contract, and should also consider how debt, cash, dilution, liquidation preferences and transaction terms affect shareholder proceeds.