Financing Saas Companies

Funding Saas Companies “ I will never again invest in a company with a traditional software licensing model”

Why do investors like software companies? + Capital efficiency + Lock-in effect + High profitability = High Valuations

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

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”

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

Funding gap: revenues

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

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

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

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

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@ivanfarneti

Financing Saas Companies

by ivanfarneti on May 20, 2009

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Financing Saas Companies — Presentation Transcript