Why VCs Only Care About ARR
- Predictability: SaaS businesses are valued higher than traditional businesses because of recurring revenue. If you have ₹1 Crore in ARR, VCs know you will likely start next year with ₹1 Crore already secured (minus churn).
- One-Time Fees Don't Count: Setup fees, consulting fees, or one-time license purchases are not MRR. They cannot be reliably predicted to occur next month, so investors exclude them from SaaS valuation multiples.
- Valuation Multiples: SaaS companies are usually valued at a multiple of their ARR (e.g., 5x to 15x ARR). If your startup generates ₹5 Lakhs MRR (₹60 Lakhs ARR), a VC might value your company at ₹3 Crores to ₹6 Crores.