Category: SaaS
April 1, 2021 Battery Ventures : Software 2021: The Rise of the Cloud
The median valuation for a public software-as-a-service (SaaS) company in 2010 was three times forward revenue; now the figure is 15 times forward revenue, according to CapIQ data, with many companies trading above 30 times next-12-months revenue. (read more…)
March 8, 2021 Sammy Abdullah via Medium : Net dollar retention from 59 SaaS co’s
Focus on the customers that matter. You shouldnt care so much about losing customers that weren’t a good fit (every SaaS company is guilty of signing up customers they shouldn’t have), whereas you should obsess over customers you lost that are a good fit. Creating real value means driving upgrades. The difference between 90% gross dollar retention and 95% gross dollar retention is meaningful, but not huge. However, the difference between 99% net dollar retention and 147% net dollar retention is massive. Net dollar retention needs to be above 100%. SaaS is a beautiful business model when net dollar retention is 100% or higher. It means you’re effectively keeping the customer for life. (read more…)
April 10, 2020 SaaS Capital : Private SaaS Company Valuations: Q1 2020 Update
Based on the current public multiple, the average private SaaS would be valued at 5.9 times ARR. However, as outlined in that white paper, there are company-specific value drivers that every operator should consider as they prepare for an equity raise or sale of their company. Listed in order of importance, they are: Growth & Scale of Revenue, Market Size, Revenue Retention, Gross Margin & Revenue Mix, Customer Acquisition Efficiency & Unit Economics, Profitability (read more…)
CATEGORY: alternative financing, SaaS, valuation
December 6, 2019 SaaS Capital : SaaS Industry 2019 Observations and Thoughts for 2020
We continue to believe that the economy and capital markets will tighten over the next several years. However, there is now a large pool of committed PE dollars to support the stronger SaaS companies through a downturn. Related, we have recently seen more support for profitability, or at least more controlled losses, among the VC and startup communities that have previously decreed growth at all costs. (read more…)
CATEGORY: alternative financing, profitability, SaaS
June 11, 2019 SaaS Capital : Private SaaS Company Valuations: 2019
To determine what your private SaaS company is worth: Find the current revenue multiple of public SaaS companies growing at a similar rate; Subtract 2 to get the discounted private SaaS company multiple; Multiply your company’s trailing twelve month revenue by the discounted private SaaS company multiple. Is that overly simplistic? Of course. What about Total Addressable Market (TAM), retention, gross margins, and “synergies,” you ask? All are important, and all those inputs help explain why all the dots in the chart are not on the straight lines. The world is full of variability and nuance. However, if you step back and look, the formula will certainly give you “most of the answer” and provide a good place to start an informed valuation discussion. (read more…)
September 10, 2018 SaaS Capital : How Do SaaS Companies Perform in a Recession?
A recession will slow the growth of an “average” SaaS company substantially. In the 2008 recession, the growth rate for arguably the best SaaS companies in the world (by virtue of them being public) fell from 40% to 10%. While the SaaS business model insulates companies from wild swings in revenue and profits, it does not make them immune, and cyclicality will negatively impact those SaaS companies with natural ties to cyclical industries or cyclical business functions. (read more…)
CATEGORY: downturn, resilience, SaaS
October 22, 2017 Jonathan Lu via Startup Grind : Using Experimental Design to set sales strategy in a SaaS Startup
Tom Tunguz, a partner at Redpoint Ventures and author of Winning with Data, recently wrote an insightful article titled Monte Carlo Simulations Of Inside And Outside Sales Teams In A SaaS Startup about the value of a balanced inside/outside sales approach. He ran a simple Monte Carlo simulation to express in probabilistic terms the benefit of following a barbell portfolio approach a la Nassim Taleb: balance the high predictability / fast sales-cycle of your inside sales team with the slow sales-cycle / high upside of your field sales team. From one math nerd to another, I loved Tom’s analytical approach to quantify what is qualitatively intuitive, and found myself wanting more. Experimental Design enriches this conclusion by showing the value of thicker barbell plates: empower those field sales reps who you rely on to swing big to get more at bats, and those inside sales reps who you rely on for consistency to close with greater regularity. (read more…)
October 12, 2017 CRV via Medium : SaaS Waterfall Metrics 3–2–1
The calculations and definitions of SaaS businesses are fairly standardized, but the format of the data exchanged and reported on is all over the map. Having spent five years in the VC industry and seeing pretty much every variation of an up and to the right ARR chart out there (and down and to the right), I’ve decided to post my preferred format. Ideally this will prove helpful for startups and investors often juggling terminology and answering the question: “How did you do in Q1? (read more…)
May 17, 2017 Christoph Janz @ Point Nine Capital : The growing dissonance between two business models (SaaS and VC)
For VCs, the question is how many of these companies can become large enough to make the (admittedly somewhat weird) business model of venture capitalists work. Large VCs need multiple unicorns just to survive. In SaaS, that means companies that get to $100M in ARR and keep growing fast beyond that mark. With a ~$60M fund, we at Point Nine may not need unicorns to survive, but we won’t generate a great return if we don’t have exits north of $100M either. (read more…)