Insofar as this works, can anyone explain why it might or might not work? Or perhaps why it must be coincidental.
If I squint, I can imagine it being related to a few things. Average salary at a SASS startup is roughly the same across startups. Marginal revenue is very high. And then there's something about keeping revenue and costs pretty close even though the entity is in 'start-up mode'. Or perhaps that's more a function of average round size and average targets for making the round last.
Still seems weird that this would come close. Or maybe it's bogus...
I think the insight is that if a company has lots of revenue per employee (headcount correlates pretty well with overall operating costs) they'll take that as a signal that they're doing well and can afford to expand. And then they'll do this until they no longer feel like they're in such a secure financial position.
This, by the way, is why the multiplier is lower for well-funded companies - if they have more runway in the bank, they'll feel better about a lower level of revenue per employee, since they don't have to operate at a profit in the short term.
Let's say to were making $50,000 per employee in revenue and paying each employee $80,000. You'd be losing money on each hire (and therefore would begin firing people). If you were able to make an additional $100,000 per new hire, you'd continue to hire until you cannot make marginal gains. It's no surprise that the number ends up being 2-3x salary / employee. That's what would be most profitable.
If I squint, I can imagine it being related to a few things. Average salary at a SASS startup is roughly the same across startups. Marginal revenue is very high. And then there's something about keeping revenue and costs pretty close even though the entity is in 'start-up mode'. Or perhaps that's more a function of average round size and average targets for making the round last.
Still seems weird that this would come close. Or maybe it's bogus...