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Cybersecurity Startup Valuation: 2022 Multiples + Example

According to a recent research, the global cybersecurity market is projected to reach $366 billion by 2028. Due to strong underlying market trends, the Cybersecurity industry has some of highest tech valuations out there, indeed we get a median EV/Revenue multiple of 10.5x even for publicly-listed companies..!

Whether you’re looking for a valuation, as a founder or an investor, you’re at the right place. In this article we’ll go through a step-by-step valuation guide that works for any Cybersecurity startup.

And to do so, we are using the most common valuation methodology for startups: the Venture Capital method. Also, we’re using publicly-available comparable companies in the Cybersecurity industry so you can follow along, and do the same for your startup.

Let’s dive in!

Cybersecurity Startup Valuation: Methodology

There are a number of startup valuation methodologies. Although none of them are perfect (as explained in our article here), they all try to calculate a valuation for a business given a number of both quantitative and qualitative factors. By far the most common methodology venture capital firms and investors worldwide use to value startups, including Cybersecurity startups, is the Venture Capital Valuation Method (the “VC method”).

Indeed, the VC valuation method solves an important problem: unlike other methodologies the VC method takes into consideration business, market and investor-specific factors. Let’s see how.

Why Should You Use The Venture Capital Method?

A startup valuation (and its valuation multiple) is driven by a number of factors which can be grouped in 4 main categories. All of them are business, market or investor-specific, they are:

Product market fit & traction

A startup is more valuable if it can prove investors it already found early adopters for your product (product-market-fit), or even better: it already generate revenues

Team & execution track record

A startup valuation is higher if the founding team has a successful track record


Your startup will be more valuable if your market is large and/or highly fragmented and/or growing at double digits

Investor’s appetite and bargaining power

Above all else, investors value startups so they can make a (substantial) profit in the future. If a startup is deemed too expensive, no investors will invest. Same goes with bargaining power: the more term sheets a founder receives from investors, the higher the valuation

How Does The VC Method Work?

The VC valuation method allows anyone to estimate a startup’s valuation by using 3 main drivers:

1. Expected revenues (business specific)

Expected revenues are usually 5-year revenue projections, meaning the startup expected revenues in 5 years time. Although startup financial projections obviously come with their grain of salt, we wrote extensively on the best practices to build realistic revenue projections for your startup.

By definition, (realistic) revenue projections are a direct function of the business (and by extension product market fit & traction and team & execution track record).

2. Industry valuation multiples (market specific)

Industry valuation multiples are revenue multiples (EV/Revenue for “Enterprise Value”) of comparable companies within the same industry. Scroll down below for 2022 Cybersecurity companies’ valuation multiples.

Naturally, industry valuation multiples are a direct function of the market landscape.

3. Investors’ IRR (investor specific)

Investors’ IRR (“Internal Rate of Return”) is a required return on investment that varies between investors and the stage of investment. The higher the risk, the higher the required IRR. For example, an investor would require a higher IRR for an early stage deal such as a seed round vs. a Series A or Series B round.

Naturally, investors’ (required) IRR is investor-specific.

Cybersecurity Startup Valuation: Example

Now that we’ve covered what the Venture Capital valuation method is, and how it works, let’s now see how to use it to value a Cybersecurity startup.

1. Expected Revenues

The first thing to do is to forecast your startup (or the startup you’re trying to value) over 5 years. No need to go into much depth when it comes to expenses and cash flow as we will only look at projected revenues here.

For more information on how to create realistic revenue projections for your startup, see our article here, or check out our expert-built financial model templates below to save time & effort.

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So now let's assume that, for the purpose of the VC valuation method, we're projecting the financials of a Cybersecurity SaaS startup and we forecast 5-year revenues at $60 million.

2. Valuation multiples

Looking at the Cybersecurity startups out there, we can find 13 publicly-listed company comparables (see the full list here).

Important: To keep things simple, and for the purpose of this article, we are using these 13 companies to derive the Revenue valuation multiple we will use as part of the VC valuation method. Naturally, when calculating your startup valuation, you must select the comparables that make more sense to the company's specifics and not the entire group.
CompanyEV ($M)LTM Revenue ($M)EV/Revenue
CrowdStrike Holdings, Inc.49,7201,45234.3x
Datto Holding Corp.4,0836196.6x
KnowBe4, Inc.6,03324624.5x
NortonLifeLock Inc.19,1922,7527.0x
Okta, Inc.25,2921,30019.5x
Palo Alto Networks, Inc.63,5154,85813.1x
Ping Identity Holding Corp.2,2902997.7x
Qualys, Inc.5,45041113.3x
SecureWorks Corp.9105351.7x
SentinelOne, Inc.9,03120544.1x
Tenable Holdings, Inc.6,43254111.9x
Varonis Systems, Inc.4,71739012.1x
Zscaler, Inc.34,08686039.7x
For the purpose of the VC valuation method, we will use the median EV/Revenue multiple of 13.1x, further adjusted for the Discount of Lack of Marketability (DLOM) of 25%. So we finally obtain a EV/Revenue adjusted multiple of 10.5x.

3. Investors’ IRR

Investors required IRR vary by investors, the stage they’re investing in (early-stage deals tend to require higher IRR vs. later stage deals) and the industry naturally.

According to a recent study, the average IRR for venture capital firms was 19.8%. Yet, this percentage is an average: it also takes into account failed deals (the ones that go wrong). Indeed, VCs typically hope to realise anywhere between 40-60% IRR on the deals they invest in. Again, this is a high-level average, and depends on a number of factors as explained earlier.

For the purpose of our analysis, we'll use 40-60% IRR as a low-end, high-end valuation range.

4. Wrapping Up

As per the VC valuation method, first we need to calculate the exit value: the valuation of the company when VCs are expected to sell their stake (by default here 5 years).

Exit Value = EV/Revenue x Revenue at exit (5 years)

Exit Value = 10.5 x $60M

Exit Value = $630M

Now, assuming we are looking at a Series A startup, we therefore assume investors will require a 40-50% IRR over the next 5 years. Indeed, understanding the stage of the startup we are trying to value (whether Seed, Series A or B) allow us to accurately estimate the required IRR. For example, a Seed startup could be valued using 50-60% IRR, whilst a Series A startup would instead use 40-50%.

Now we must discount the exit value to obtain the post-money valuation as shown below:

Post-money valuation = Exit value / (1 + IRR)^5

$630M / (1 + 50%)^5 < Post-money valuation < $630M / (1 + 40%)^5

$83M < Post-money valuation < $117M

This means this startup could reasonably be valued today at a pre-money valuation of $83 to $117 million (for more information on what is pre and post money valuation, see our article here).

Finally, although the exit value is calculated with a 10.5x multiple (from publicly-listed comparable companies), the current startup valuation logically result in a different (higher) multiple. Indeed, the $83-117M valuation results in a EV/NTM Revenue multiple of ~17-23x using the NTM revenue of $5M as shown earlier (NTM for “next-twelve-months”).

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