Simplifications aplenty: using reported ARR as annual revenue figure, and having a fixed net profit margin (30%). Entry ticket — $60m was valuation paid, not Tiny Capital’s investment. Overall, we are focusing on IRR here, so nominals are less relevant.
Finally, payout ratio for shareholder distributions is set at 50%. In line with Wall Street’s ballpark average — and, with Buffer’s own approach to buying out investors.
So… what would make Buffer a good investment? With an attractive returns profile vis-a-vis other asset classes? And, if you want to start a get-rich-slow SaaS fund — what is your target maturity?
“Payouts and perpetuity” scenario yields returns in high single-digits, or low teens. At the end of holding period, investor still holds the shares, retaining rights to future dividends. Value of those, you can estimate as perpetuity — here, at a discount rate of 15%, ballpark figure for cost of equity.
But wait… that perpetuity — is a “paper valuation”. No money changes hands, unless the investor sells at that level. Why would they, assuming significant growth left in the business? What if, at end of the holding period — investor sells the Buffer stake at market valuation?
For a liquidity event, a 5x EV/Revenue exit multiple is assumed. Low? Perhaps, by today’s standards — and for today’s Buffer. Mature software businesses, like Oracle — do trade around 5x. Another simplification: net debt is zero.