VRC is pleased to announce that Senior Vice Presidents Devon Martineaux and Andrew Miller, CFA explore how deals based on Annual Recurring Revenues (ARR) offer an avenue for lenders to leverage the early-stage growth market in an article, “How to unlock the potential of ARR,” published in Private Debt Investor. The piece explains how the evolving private credit landscape has led to the emergence of ARR as a cornerstone metric for evaluating performance and risk profile of subscription-based growth companies.

The team writes, “Given the nature of long implementation times and frequent new customer (or logo) wins for subscription-based growth companies, ARR is used to reflect the full-year impact of recent bookings, upsells, downsells, and churn, presenting the latest forward-looking top-line view.”

They break down the five components of calculating ARR, explain the foundation of an ARR deal, including the quantitative and qualitative factors that underwriters must consider when evaluating them, and discuss the challenges with cross-company comparisons with ARR deals.