Skip to Main Content

SaaS Industry Trends – 2016 Observations

March 16, 2016

Although not by design, much of our year so far has been spent in Silicon Valley drinking the Kool-Aid at various SaaS industry events. And while SaaS Capital does not approach the market in the same way as these unicorn makers, there are valuable insights to be gleaned from the operators and investors in the Valley.

Here’s the early CliffsNotes version of the most interesting things we have gleaned in 2016 across a wide variety of topics.

VC Musings and Valuations

  • Public markets are currently valuing SaaS businesses at about 4.5 times run rate revenue. This is well below historical norms of 6.5 times revenue, and makes little sense considering growth rates and unit economics; but it’s a fact. Private investors will not, over time, pay a premium to public markets.
  • The tech IPO market is completely shut. If it stays shut, the pricing compression from the public market to the private market will be exacerbated.
  • The VCs all say the current situation is more of a price reset in the market, not a pullback in capital deployment. While that is what they are currently “saying,” no one really knows and investors are clearly being more cautious.
  • In this environment, operators must carefully balance their rate of investment (burn) vs. their ability to raise capital. Don’t get on the wrong side of this equation.

Financial Metrics

  • Grow efficiently. Understand Sales Efficiency Metrics (more here and here), track them, live them. These are all derivatives of the CAC ratio but are less about unit economics and more about the capital it takes to grow.
  • Net revenue retention in some top performing public and private companies is 150% to 300%, and almost always over 100%.
  • To properly benchmark your company’s growth rate against a public company, you must benchmark the public company when it was a similar size. Most public companies growing more modestly now were growing at 200% or more when they were less than $10 million in ARR.
  • There is no sign of an economic slowdown in the bookings numbers of any of the public or private businesses.

Product Trends

  • Leading SaaS businesses are starting to use customer data to make their offerings better. To date, manifestations are peer benchmarking, dashboard warning lights, and some limited “machine learning.”
  • is rolling out a product called “Shield,” which is a beefed-up security product providing encryption at rest across their app platform.
  • Silicon Valley-based private companies are predominantly on AWS, and are also looking at Azure. Very few are co-lo or private cloud.
  • Larger incumbents like SAP and Oracle are dropping prices aggressively to defend and win deals against directly competitive SaaS companies.

SaaS Capital

SaaS Capital® pioneered alternative lending to SaaS. Since 2007 we have spoken to thousands of companies, reviewed hundreds of financials, and funded 80+ companies. We can make quick decisions. The typical time from first “hello” to funding is just 5 weeks. Learn more about our philosophy.

Our Approach

Who Is SaaS Capital?

SaaS Capital® is the leading provider of long-term Credit Facilities to SaaS companies.

Read More


Get SaaS Capital® research delivered to your inbox.