Financing Saas Companies

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

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Financing Saas Companies

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

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