The Invisible Graph: How Companies Grow Revenue And Still Lose Value

Following a recent phone call with a prospective client whose business is performing exceptionally well, I learned they have no immediate plans to sell. Instead, they prefer to capture upcoming growth over the next few years to secure a larger exit down the line.

That discussion sparked a realization about a blind spot common among many entrepreneurs: revenue can increase while enterprise value decreases.

When revenue and value move in opposite directions

While founders and boards regularly monitor revenue and profitability, another vital metric deserves the exact same level of scrutiny: enterprise value. This trajectory can head downward even as day-to-day operating figures rise, which holds major consequences for the timing of any merger or acquisition (M&A).

Take the example of a hypothetical SaaS business bringing in $15 million in annual recurring revenue (ARR) with a 6x ARR valuation multiplier, resulting in an implied enterprise value of $90 million. Two years later, the ARR climbs to $20 million, but the multiple drops to 3.5x revenue. Consequently, the enterprise value shrinks to $70 million. Although revenue grew by 33%, overall value fell by 22%.

These figures serve purely as a hypothetical illustration to highlight how multiple compression can easily eclipse operational growth. For any founder holding off on a sale until hitting a specific revenue target, the lesson is straightforward: reaching that future milestone might still lead to a smaller overall exit.

Qualitative, absolute and relative factors

A revenue multiplier encapsulates various dimensions that shift independently over time. Qualitative elements span leadership quality, reliance on the founder, market competition, product uniqueness and strategic value to potential buyers.

Absolute financial indicators encompass revenue, EBITDA, and cash flow.

Relative performance metrics cover growth, profit margins, net revenue retention, and gross revenue retention. Although retention rates appear as percentages, their true value stems from what they indicate regarding customer longevity and expansion. Prospective buyers evaluate these benchmarks collectively and benchmark them against comparable competitors. As businesses scale, absolute performance often improves while growth speeds slow down.

At the same time, enhanced profitability, stronger retention figures, or a more robust leadership team can help sustain or boost a multiple. The final valuation relies on how these variables interact. As a result, corporate boards must evaluate which traits are likely to strengthen over the coming year, which might weaken, and how buyers will value those shifts.

M&A preparation should begin while you are winning

Executing a successful company sale demands thorough preparation, proactive buyer outreach, strategic negotiation, and rigorous due diligence—a period during which buyers constantly re-evaluate financial performance and forward-looking forecasts.

Delaying action until a business slowdown becomes apparent can erode negotiating strength and cast doubt on management’s forecasts. Furthermore, strategic buyer appetite operates on its own schedule. A purchaser might place immense value on absorbing a specific technology, client roster, or geographical footprint right now, only to lose interest later following an internal product release, a rival acquisition, or shifted corporate budgets.

Of course, postponing a transaction can still generate substantial value if added scale draws in a wider pool of buyers, profitability rises, or customer concentration decreases. Boards can substantiate this strategy by tracking projected enterprise value right alongside their core operating plan, modeling scenarios where revenue scales while valuation multiples remain flat, increase, or shrink. Leadership should also factor in how debt, cash reserves, equity dilution, liquidation preferences, and deal structures ultimately influence net shareholder payouts. Since nobody can accurately predict the exact peak of a market valuation ahead of time.

Every choice to delay an exit inherently assumes a specific outlook for future valuation—and that perspective warrants tracking on its own chart.

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Itay Sagie, a guest contributor to Crunchbase News, is a seasoned lecturer and strategic adviser to startups and investors, specializing in strategy, growth and M&A. You can connect with him on LinkedIn for further insights and discussions.

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Illustration: Dom Guzman

?Frequently Asked Questions

01Can a company grow revenue and still lose value?

Yes. As demonstrated by multiple compression, if a valuation multiple drops faster than revenue grows, the overall enterprise value of the company will decline.

02What are qualitative factors that affect valuation multiples?

Qualitative factors include management quality, founder dependence, competitive intensity, product differentiation and strategic relevance to buyers.

03When should a company start preparing for an M&A exit?

Preparation should begin while the business is performing well, rather than waiting for a visible slowdown that could harm negotiating leverage.