Financing Saas Companies

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Presentation given at the Rackspace SAAS and Cloud Computing seminar on May the 20th, 2009 Reading UK

Presentation given at the Rackspace SAAS and Cloud Computing seminar on May the 20th, 2009 Reading UK

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  • 1. Funding Saas Companies “ I will never again invest in a company with a traditional software licensing model”
  • 2. Why do investors like software companies? + Capital efficiency + Lock-in effect + High profitability = High Valuations
  • 3. The Saas paradox
    • Saas companies are neither more profitable nor more capital efficient than perpetual license companies
    • However:
    • Saas companies have been valued higher thanks to more predictable revenue and cash flows
  • 4. Traditional Vs. Saas
    • Median Capital Raised: $10.1m
    • Median revenue to reach profitability: $48m
    • Median Years to Exit: 4
    • Revenue multiples: 3-4x
    • CF multiples: 15-25x
    • 3.7x more capital raised
    • 1.8x more revenue to hit profitability
    • 1.6x longer to get liquid ( IPO, in the sample )
    • Revenue multiples: 6-7x
    • CF multiples: 30-40x
    Source: Will Price, Hummer Winblad “The economics of Saas”
  • 5. Funding gap: costs Source: Matt Hammerman “It costs more to be a Saas company” Go to Market Functional Testing Reliability Testing Idea creation Engineering & Development Saas Perpetual license
  • 6. Funding gap: revenues
  • 7. The January 1 st QOTD
    • “ Yesterday we celebrated the end of a good year: it was tough, but we hit the revenue budget!”
    • “ The bad news is that now we have to start all over again…”
    • P. Varkevisser, CEO Tridion
  • 8. The January 1 st QOTD
    • “ I already have more than two thirds of my revenues for this year in the bag!”
    • J. Ellertson, CEO Gomez
  • 9. It’s all about predictability
    • Renewal Bookings (>90%)
    • Growth Bookings by existing accounts (  and  )
    • New Bookings
      • Anchor feature/product (no EoQ syndrome)
      • Activation Time
    • Payment terms (auto-everything)
    • Linear scaling: on demand hosting, cloud
    • Resource planning rolling quarterly
  • 10. The switch to Saas
    • The “funding gap” is only one of the “gaps”
      • Pricing and consumption metrics
      • Sales channels and comps metrics
      • R&D, Ops & Q&A metrics
      • Management accounting & reporting
    • Do it as soon as possible
      • Confusion and cannibalization
      • Separate company/division/brand
  • 11.
    • [email_address]
    • @ivanfarneti