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With the third quarter of 2020 now closed, below are our observations of the SaaS industry and an update to the SaaS Capital Index, which tracks public company valuation multiples.
In the first quarter of each year, SaaS Capital conducts a survey of B2B SaaS company metrics. This year’s study marked our 9th annual survey, and with over 1,400 private B2B SaaS companies responding. Below is a summary of our findings on private SaaS company growth rates.
Public SaaS company data is the best starting point when valuing a private SaaS business so we created the SaaS Capital Index (SCI) to be an up-to-date valuation tool for pure-play, B2B, SaaS businesses. As of June 30, the median SaaS valuation multiple for public companies stands at 11.4x ARR. Applying the historical private company discount of 28%, the median valuation multiple for private SaaS companies is currently 8.2x ARR.
Because of its compounding effect on growth, revenue retention is now well established as the most important metric for ensuring medium- to long-term business health. Earlier this month, we published our 2020 B2B SaaS Retention Benchmarks, which explored retention benchmarks across of range of breakdowns, including annual contract value (ACV), growth, channel sales, venture-backed companies compared to bootstrapped companies, and other breakdowns.
There are more options than ever for SaaS businesses to borrow money today. Whether or not your company is profitable or formally venture-backed, and what your specific goals are with the debt will determine which lender and structure is best for your company.
For most of us, the past few months have been a difficult and challenging period. Our normal daily lives have been upended from stay at home orders, the indefinite closing of schools, and parents required to fill the gap with online education platforms. That is before considering the financial impact and emotional stress that the pandemic has caused.
We created the SaaS Capital Index (SCI) as a resource for the owners and operators of software-as-a-service (SaaS) businesses to use as part of a valuation framework for private SaaS companies. With the recent market swings at the end of Q1, it is an opportune time to check in on the SCI.
If a SaaS business is charging its customers annually in advance, and that business starts to shrink, teams and investors must be acutely aware that its cash flow will go down much quicker than the P&L will indicate.
A feature of a sustainable recurring revenue business model is that, unlike other business models, you can pretty much know your company’s valuation at any time, and depending on how confident you are in your forecasts, project it out into the future as well.
Below are some thoughts on the SaaS industry this past year, our perspective on the market going forward, and a short recap of our previous year and decade.
