SaaS companies that generate $0.64 per $1.00 of investment go public

In the quest for revenue growth, too often companies in the SaaS space overlook the importance of cash efficiency.  In our view, cash efficiency, measured as revenue per year / equity + debt invested, is every bit as important as growth. After all, if you’re spending too much to grow you’re simply diluting away your return. 

 

We did an analysis looking at the revenue, equity, and debt of 75 publicly traded SaaS companies at the time they went public.  Using the equation above (revenue/[equity invested + debt]), we were able to observe the cash efficiency of each company.  The conclusion: if you can generate $0.64 cents of revenue each year per $1.00 of investment in SaaS, you’re in line with other SaaS businesses that went public.   Why does it make sense that $1 generates $0.64? Because good SaaS businesses have net retention of 100%+, so they generate that revenue every year.  Below is the data. 

 

    S1       Revenue/
Name Ticker Year Revenue Debt Equity Capital
2U TWOU 2013 $83 $0 $106 $0.79
Athenahealth, Inc. ATHN 2006 $76 $27 $52 $0.95
Bazaarvoice, Inc. BV 2011 $64 $0 $35 $1.83
Benefitfocus, Inc. BNFT 2012 $82 $8 $142 $0.55
Box, Inc. BOX 2014 $124 $34 $424 $0.27
BroadSoft, Inc.  BSFT 2009 --- $18 $94 ---
Castlight Health, Inc.  CSLT 2013 $13 $0 $187 $0.07
Cornerstone OnDemand, Inc. CSOD 2010 $44 $10 $82 $0.47
Five9, Inc.  FIVN 2013 $84 $25 $88 $0.74
Hortonworks, Inc. HDP 2013 $11 $0 $107 $0.10
HubSpot, Inc. HUBS 2013 $78 $0 $114 $0.68
IntraLinks Holdings, Inc. IL 2010 $184 $126 $365 $0.38
Jive Software, Inc. JIVE 2010 $46 $9 $65 $0.63
Lifelock LOCK --- --- --- --- ---
LivePerson Inc. LPSN --- --- --- --- ---
LogMeIN, Inc. LOGM 2006 $11 $2 $21 $0.49
Marin Software, Inc. MRIN 2011 $36 $7 $54 $0.60
Medidata Solutions, Inc. MDSO 2008 $85 $23 $34 $1.48
MobileIron, Inc. MOBL 2013 $106 $4 $179 $0.57
New Relic, Inc. NEWR 2014 $63 $0 $113 $0.56
Proofpoint, Inc. PFPT 2010 $65 $0 $123 $0.53
Qualys, Inc. QLYS 2011 $76 $4 $77 $0.94
RealPage, Inc. RP 2009 $141 $52 $96 $0.95
RingCentral, Inc. RNG 2012 $115 $21 $84 $1.09
salesforce.com, Inc.  CRM 2003 $51 $6 $92 $0.52
ServiceNow, Inc. NOW 2011 $93 $0 $71 $1.31
Splunk, Inc. SPLK 2011 $66 $0 $46 $1.42
SPS Commerce, Inc. SPSC 2008 $31 $4 $71 $0.41
The Ultimate Software Group, Inc. ULTI 1997 --- --- --- ---
Veeva Systems Inc. VEEV 2013 $130 $0 $9 $14.34
Wix.com Ltd. WIX 2012 $44 $0 $49 $0.89
WorkDay, Inc. WDAY 2010 $134 $16 $277 $0.46
Zendesk, Inc. ZEN 2013 $72 $24 $90 $0.63
Secureworks SCWX 2015 $262 $0 $622 $0.42
Appfolio, Inc. APPF 2014 $48 $0 $65 $0.74
Atlassian Corporation TEAM 2015 $320 $0 $24 $13.26
Twilio TWLO 2015 $167 $0 $262 $0.64
Instructure INST 2014 $44 $0 $103 $0.43
Mindbody, Inc MB 2014 $70 $15 $166 $0.38
Shopify SHOP 2014 --- $0 $97 ---
Xactly XTLY 2015 $61 $27 $90 $0.52
Nutanix NTNX 2015 $241 $0 $357 $0.68
Apptio APTI 2015 $129 $0 $160 $0.81
Blackline BL 2015 $84 $28 $215 $0.34
Coupa Software COUP 2016 $84 $0 $182 $0.46
Okta OKTA 2016 $86 $0 $251 $0.34
Alarm.com ALRM 2014 $167 $7 $210 $0.77
Alteryx Inc AYX 2016 86 0 108 $0.79
Amber Road AMBR 2013 $53 $10 $92 $0.52
Appian Corporation APPN 2016 $133 $20 $57 $1.73
Blackbaud BLKB 2003 $118 $5 $42 $2.52
Callidus Software CALD 2002 $27 $5 $97 $0.26
Channel Advisors ECOM 2012 $54 $12 $94 $0.50
Cloudera CLDR 2017 $261 $0 $850 $0.31
Ebix EBIX --- --- --- --- ---
Ellie Mae ELLI 2009 $38 $1 $89 $0.42
Everbridge Inc EVBG 2015 $59 $17 $62 $0.74
FireEye FEYE 2012 $83 $12 $109 $0.69
HealthStream HSTM 1999 $4 $1 $21 $0.18
J2 Global JCOM 1998 $4 $7 $22 $0.12
Kinaxis KXSCF --- --- --- --- ---
Medidata Solutions MDSO 2008 $85 $23 $35 $1.48
Mimecast MIME --- --- --- --- ---
Mulesoft MULE 2016 $188 $0 $278 $0.67
NantHealth NH 2015 $58 $0 $641 $0.09
Paycom Software PAYC 2013 $108 $36 $64 $1.08
Paylocity Holding PCTY 2013 $77 $2 $37 $2.03
Q2 Holdings QTWO 2012 $41 $4 $30 $1.24
Tabula Rasa Healthcare TRHC 2015 $70 $40 $29 $1.02
Talend TLND 2015 $76 $10 $97 $0.71
The Trade Desk TTD 2016 --- $57 $83 ---
Upland Software UPLD 2013 $41 $29 $51 $0.52
Workiva WK 2013 $85 $18 $15 $2.63
Yext YEXT 2017 $124 $5 $173 $0.70
Zix ZIXI --- --- --- --- ---
             
             
Average   2012 $90 $12 $137 $1.16
Median   2013 $77 $5 $92 $0.64

 

 

A few companies stand out: Veeva Systems and Atlassian were built with very little investment, generating $14.34 of revenue per year for each dollar invested and $13.26 respectively.  Those companies have very happy investors, and indeed they’re so prolific that if we pull them from the data set, the average falls from $1.16 to $0.76.  The median of $0.64 is what we look to as the relevant metric, so that outliers have no impact. 

 

Cash efficiency may not be as sexy as revenue growth, but if you can generate $0.64 of recurring annual revenue per $1.00 of investment, you’re on your way to joining the ranks of successful publicly traded SaaS companies.   

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