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Morning Report: Squarespace just put new markers around software as a service valuations. Let’s take a look.

According , Squarespace is raising $200 million at a $1.7 billion valuation.

The firm has been around since 2004, , having raised a total of $78.5 million previously. Prior to this new round, the firm raised a $40 million Series B in 2017, led by General Atlantic.

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All that aside, here’s what tells us:

• Squarespace is profitable.
• Squarespace grew about 50 percent in the last year.
• Squarespace generated revenue of “about $300 million” in the last year.
• The deal is largely secondary.

The fourth point doesn’t matter for our discussion. I only wanted to head off the obvious question as to why Squarespace would bother to raise at all.

Back to work, we can do some quick math to figure out what investors are paying for the company.

Let’s get a revenue multiple. At a $1.7 billion valuation, investors are paying about 5.66 times trailing revenue, employing on the $300 million figure. Astute readers will note that that is the nearly the聽same price-sales ratio that Box enjoys.

So Squarespace is raising private capital to cash out extant shareholders at public market prices.

But Box fails the Rule of 40 test, whereas Squarespace passes with flying colors. (The Rule of 40 test is the addition of a firms聽growth rate and profitability. The sum should be over 40 to pass.) Given this, you might think that the firm would be worth more on a per-dollar basis.

However, it is possible investors are betting that Box has a larger long-term market opportunity, or that Box’s revenue growth is slower on a percentage basis but from a higher revenue base.

Regardless,聽if it was going public, the website creation startup is setting its valuation聽right where it would want it to be. Of course, it won’t do so, as evinced by the secondary nature of the infusion. But the seemingly conservative nature of the funding round should be cautionary to others.

If Squarespace is willing to take on capital at this per dollar of revenue, what is your argument that your firm is worth more?

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