How Do You Value a High-Growth Business?

(Hint: You don’t just slap on a big multiple and hope for the best)

Valuing a business growing at 20%+ per year isn’t the same as valuing a slow-and-steady operator. You can’t just run a standard EBITDA multiple and call it done—because high growth businesses are in motion. Their past performance tells part of the story, but future earnings potential is the real prize.

That said, there’s no free pass to a sky-high valuation either. Buyers still want to know:

How much risk am I taking on, and when do I get my money back?

Here’s how brokers and serious buyers approach high-growth valuation in practice—beyond the spreadsheet.

1. Start with Today’s Fundamentals

Even if the business is growing fast, we don’t ignore today’s earnings. A buyer needs an anchor point. We typically look at:

Trailing 12-month EBITDA or EBIT

Revenue run rate

Gross margin trends

Cash conversion: Is profit turning into cash, or getting chewed up by working capital?

🚨 If the business is growing, but cash is always tight, that’s a red flag—not a growth premium.

2. Project Future Earnings—But Be Realistic

This is where the value really starts to shift. We look at a few forward years—usually 2 to 3—based on realistic growth assumptions. A 20% CAGR sounds impressive, but buyers want to see:

Is that growth repeatable?

Is it driven by one client, a single channel, or a broad base?

What’s customer churn like?

Are margins holding, or eroding as you scale?

🧠 A buyer might pay based on next year’s or even year two’s EBITDA—but only if they’re confident they’ll capture it themselves.

3. Blend Current and Forward Earnings

A common method is to use a blended multiple, applying different weights to past, current, and forecast earnings:

Year 1: 50% weight

Year 2: 30% weight

Year 3: 20% weight

This helps bridge today’s performance with tomorrow’s promise. It’s a hedge against overpaying for projections that may not materialise.

4. Adjust the Multiple Based on Risk

Even high-growth businesses don’t get a blank cheque. The multiple still needs to reflect:

Revenue concentration (one or two big customers?)

People dependency (key staff or founders critical?)

Operating leverage (can margins improve with scale?)

Capital intensity (do you need to reinvest heavily to grow?)

Cash burn (are you funding growth from profit or outside capital?)

🔍 A business growing fast and showing strong margins and cash generation might fetch 6–8x EBITDA.

One that’s bleeding cash or founder-reliant might still be capped at 3–4x, even with headline growth.

5. Model ROI—Not Just a Valuation

The gravity in the room when talking about high-growth valuation is this:

How many years will it take a buyer to earn back their investment?

This is where valuation turns into deal-making. A smart buyer might say:

“I’ll pay a 6x multiple—but only if I get to year two’s earnings.”

“I’ll pay full price—but part of it is deferred or earnout-based, tied to hitting growth targets.”

6. Use Earnouts to Bridge the Gap

Earnouts are common in high-growth deals. They allow a buyer to lock in a lower base price, while giving the seller upside if the business actually delivers future results.

Year 1 target hit? Seller gets $X.

Year 2 revenue milestone? Additional $Y.

🧮 This structure aligns risk and reward—and gives both sides comfort that valuation isn’t based purely on hope.

7. Watch the Working Capital Trap

In high-growth businesses, receivables, inventory, or delivery capacity can balloon faster than profit. Even if the P&L looks great, the balance sheet can swallow cash.

⚠️ A buyer isn’t just buying your earnings—they’re buying into your working capital cycle. If they have to inject more cash to support growth, that comes off the headline price.

In Summary:

Valuing a high-growth business isn’t about throwing on a high multiple—it’s about telling a credible story of future earnings and buyer return.

Sellers need to:

Show the growth is real, repeatable, and documented

Build a forecast that holds up under questioning

Be ready for earnouts or staged consideration

Understand the buyer is investing in what’s coming, not just what’s been

💬 “The biggest buy sign isn’t price—it’s when a buyer starts explaining how they’ll run the business.”