According to Gartner, global revenue from SaaS companies topped $58 billion
in 2017 and the firm estimates they’ll grow to $99.7 billion by 2020. We now have two SaaS companies worth more than a $100 billion – Adobe and Salesforce – with Workday and ServiceNow quickly on their heels. In 2018, we’ve seen several successful IPOs, including Zuora, Pluralsight, Smartsheet, Avalara, DocuSign and Dropbox with a few more on tap. If you take a step back, it’s staggering to think how far we’ve come – can you believe Salesforce.com turns 20 in February?
I know The Economist recently called Peak Valley
, but we’ve yet to hit peak SaaS. Need evidence? Just look at the results of our 2018 Expansion SaaS Benchmarks
to see why. We surveyed 400+ enterprise SaaS companies on topics ranging from competition in the space to pricing, the global growth of SaaS, diversity and more.
Continue reading "2018 Expansion SaaS Benchmarks: It Ain’t Peak SaaS Yet"
Software investors have traditionally focused on three key valuation drivers when evaluating businesses, including:
- Revenue growth, which is strongly positively correlated with valuation (enterprise value / revenue)
- Gross margin, which demonstrates the scalability and repeatability of product delivery to customers
- Rule of 40, calculated as revenue growth plus EBITDA margin, which acts as a proxy for efficiency (balancing growth vs. burn)
Surprisingly, the 1H 2018 IPO Cohort1
is not differentiated on key valuation drivers as compared with the broader public SaaS index2
. Let’s take a look:
Source(s): Pitchbook on 8/10/2018. Market data as of 6/30/2018.
Growth, particularly forward (2019P) growth of the Cohort is on par with the broader SaaS index (+1.6%). The Cohort isn’t surging towards market dominance significantly faster than other public companies. The 1H 2018 IPO Cohort operated at lower trailing gross margins compared to the SaaS index (-2.3%) suggesting
Continue reading "Product Led Growth: The Secret to Becoming a Top Quartile Public Company"
The IPO has all but disappeared.
In 2012, the SEC’s Advisory Committee on Small and Emerging Companies published a report titled “Where Have All the IPOs Gone
”. The report sought to explain the recent decline in IPOs and the steady stream of companies leaving public markets, opting to go private instead through M&A.
Across all industries, an average of 311 firms went public every year from 1980-2000, but between 2001-2011 an average of just 99 firms did so.
For the software industry, the availability of private capital at all stages has accelerated the decline in new pricing activity. Private equity firms are increasingly comfortable with software assets – more PE firms have raised dedicated “pre-IPO funds
” or mega-funds
, and Softbank’s Vision Fund
has put more money to work in the last year than was added to the NYSE in the first half of 2018.
Continue reading "The 2018 State of SaaS IPOs"
Editor’s Note: The following article is based on a recent episode of OpenView’s BUILD podcast. You can listen to the full episode featuring Christoph Janz, Managing Partner at Point Nine Capital here.
As an early stage-investor, Christoph Janz from Point Nine Capital
has an excellent track record of investing in high-growth technology companies – think FreeAgent, Geckoboard and Typeform. Perhaps one of the best-known companies in his portfolio, however, is also the first.
“It really all started with Zendesk. I knew nothing about SaaS, but I fell in love with the idea of the consumerization of enterprise software.”
Christoph got involved with the company when it was about a year old and the product had only been in the market a few weeks. At that time, the fledgling company boasted a whopping fifty or so customers, each paying $100 per month. Today, Zendesk is aiming to hit a billion
Continue reading "VC Investor Christoph Janz on How to Scale to $100MM ARR"
The word is out: private equity has solidly emerged as the year’s best exit opportunity in SaaS. When I wrote about the trend
last November, the top private equity firms had rapidly ramped up the pace of deals, raised record funds, and become much more comfortable with growth rather than just EBITDA.
PE firms haven’t shown any signs of slowing down. Over the course of 2017, private equity buyers officially spent as much as large strategic acquirers on buying SaaS companies. What’s more is that they’ve been paying attractive prices (9.1x and 7.1x revenue
for SolarWinds and Cvent, respectively) while continuing to offer best-in-class deal dynamics like a faster and more predictable closing.
This inevitably begs the question, how should SaaS companies position themselves to be attractive to private equity buyers?
To find out, I sat down with two experts. The first was Darren Abrahamson, Managing Director
Continue reading "How to Position Your Startup to Private Equity"
As Season 2 of BUILD comes to a close, it’s only natural to examine the exit landscape. OpenView’s VP of Corporate Development, John McCullough, discusses the current exit landscape and the importance of creating relationships with strategic buyers well before a deal is done. Then Darren Abrahamson, Managing Director at Bain Capital, talks through the merits of private equity as an exit option and how a CEO can choose between several buyout offers.
Prefer to listen on iTunes? Access the episode here
The post Exits: Bain Capital on the Right Time to Exit [Podcast]
appeared first on OpenView Labs
There are plenty of activities where, at any point during the task, you can objectively know whether you’re failing or succeeding.
Playing a sport? Glance at the scoreboard.
Taking a class? Look at your grades.
Unfortunately, determining how well (or poorly) you’re scaling a new software-as-a-service (SaaS) company is not so straightforward – unless you know what to measure.
If you want to make the leap from startup to a full-fledged company, make sure you’re tracking these five SaaS metrics.
1. Customer Acquisition Cost (CAC)
What Is It?
The average amount a business invests to acquire a customer. Traditionally, CAC
is calculated by adding the total sales and marketing expenses for a given period and then dividing that amount by the number of customers gained during that same period.
Why Does It Matter?
Knowing the average CAC gives your company insight into the efficacy of each sales strategy and marketing
Continue reading "5 Key SaaS Metrics Every Software Startup Should Track"
OpenView’s Blake Bartlett discusses how a company’s go-to-market model can impact CAC Payback and if there is indeed a magic number to hit for this metric. Then we hear from Marc Morin, Founder & CEO of Auvik, about the importance of experimentation in efficiently acquiring new customers to drive down CAC.
Prefer to listen on iTunes? Click here
The post CAC Payback: How Continuous Experimentation Can Drive Down Costs [Podcast]
appeared first on OpenView Labs
How much or how little should a company burn? Adam Marcus, Managing Partner at OpenView, discusses the role of burn in a startup and how to determine the right time to raise a next round. Then we’ll hear from Nick Romito, Founder & CEO of VTS, on the tactics he used to find efficiencies after merging with their closest competitor.
Prefer to listen in iTunes? Access the episode here
The post Burn: VTS’ Story on Driving Efficiency During a Merger [Podcast]
appeared first on OpenView Labs