SaaS Capital Blog

AI Risk Framework for SaaS

Featured

AI Risks to B2B SaaS Companies: A Framework for Estimating Risk

Artificial Intelligence will affect B2B SaaS very unevenly. Most companies will be affected only marginally, as AI becomes another tool in the toolbelt for technologists to deliver business value. However, there are some parts of the B2B SaaS ecosystem that will be utterly hollowed out by AI, as entire departments or functions disappear. We suggest here some mental models to use to help you estimate the risks to your SaaS business from the rise of AI.

Private B2B SaaS Company Growth and Profitability Update: Q3 2023

In November 2023, SaaS Capital launched a short survey to compare intra-year data against our long-running annual B2B private SaaS company metrics survey. We focused on just two areas: growth rates and profitability. Key takeaways include: growth rates have slowed considerably through 2023, companies have responded by cutting costs, and the Rule of 40 number has increased for most companies through 2023.

Exploring the Cost of Capital for SaaS Companies - Part III: Cost of Equity Simplified?

In Parts I and II, we looked at public company data and private company valuation models (backed by data) in order to come up with some empirical guesses for the cost of equity capital for SaaS companies. In this part, we step back from the data for a moment in order to examine the theory. The result may surprise you.

Exploring the Cost of Capital for SaaS Companies - Part II: Closing the Public-Private Gap

In Part I, we estimated the cost of equity for public SaaS companies at 14.9% as a long-term average. However, you can’t just use numbers from public companies and apply them, unadjusted, to private companies. Private companies tend to have lower valuations than their public counterparts due to less liquid markets for their shares.

What is the Average Deal Size for Private SaaS Companies in 2023?

Due to their compliance reporting requirements, there is plenty of data available about public SaaS companies. However, due to the size and funding of those companies, their metrics are typically not a good benchmarking metric for smaller, private SaaS companies. In order to provide peer-based benchmarking, SaaS Capital conducts a survey of private, B2B SaaS company metrics in the first quarter of each year. This post summarizes benchmarking data around the topic of Annual Contract Value (ACV).

Exploring the Cost of Capital for SaaS Companies - Series Intro and Part I

The results from 2022-2023 have “reset” SaaS valuations back to a level that essentially ignores the 2020 bubble. The return has been healthy since 2018, taken overall and spread over the five-year period, and we think it represents the increase in fundamental value of public SaaS companies in that time – primarily driven by the actual growth of revenues. Our conclusion is this: public comparables support a cost of equity of 14.9%, when applied to mature public companies of scale over $100 million.

2023 Growth Benchmarks for Private SaaS Companies

The most important metric we track in the survey is revenue growth. This is because your company’s growth rate is the single largest determinant of your valuation multiple, and how you compare with companies of similar size and stage determines whether you might see a valuation premium (or discount) to the median valuation of your peers.

2023 Revenue Per Employee Benchmarks for Private SaaS Companies

A common metric by which SaaS companies track their performance is annual recurring revenue (ARR) per employee. This 2023 update explores the median ARR per employee broken down by company size and funding type, equity-backed or bootstrapped.

2023 Spending Benchmarks for Private B2B SaaS Companies

How much do SaaS companies spend on customer support or marketing? In day-to-day SaaS company operations, questions like the above are common. So, we asked survey takers what percentage of revenue is spent on cost of goods sold, customer support/success, selling costs, marketing costs, research & development, and general and administrative. This post summarizes the benchmarking data.

What is a Good Retention Rate for a Private SaaS Company in 2023?

As we have noted for many years, revenue retention is one of the most important metrics for ensuring medium- to long-term business health due to its compounding effect on growth. The relationship of new sale bookings to revenue retention is the SaaS version of “offense wins games, defense wins championships.” Here, we summarize the findings relating to retention in our 2023 survey of private SaaS companies.