Measuring cash efficiency in SaaS

Sammy is the Managing Director and Cofounder of Blossom Street Ventures. Connect on LinkedIn or email him directly at, especially founders at all stages.

Cash efficiency is one of the most important metrics in SaaS. Since the revenue at SaaS companies is largely recurring, we measure it as ARR / net investment. Formulaically it’s revenue in the latest year / [equity + debt — cash].

We did an analysis looking at cash efficiency of the 33 most recent publicly traded SaaS companies at the time they went public. Using the equation above (revenue/[equity invested + debt — cash]), we were able to observe the cash efficiency of each company. The conclusion: if you can generate $0.58 cents of revenue each year per $1.00 of investment in SaaS, you’re at the median of successful SaaS businesses that went public. Below is the data.

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A few observations:

The logic. Why does it make sense that $1 of investment generates only $0.58 of revenue? Because good SaaS businesses have net retention of 100%+, so they generate that revenue every year. Additionally, since recurring revenue is so valuable, SaaS businesses are valued as a multiple of revenue, so it’s important to know how much of that valuable revenue has been generated by the capital invested.

The best businesses generate ~$2. The top 10 publicly traded SaaS businesses in our set on average are generating $1.91 of revenue for every $1 of net investment. The dataset includes familiar companies like Zoom Video, JFrog, and DataDog. The most efficient is the lesser known PubMatic, at $3.41.

The least efficient generate $0.29. The 10 least efficient businesses in the data set generate $0.29 of revenue for every dollar of net investment. This includes companies like Slack, Snowflake and Palantir, with the worst being Palantir at $0.22.

If you can generate $0.58 of recurring annual revenue per $1.00 of investment at scale, you’re on your way to joining the ranks of successful publicly traded SaaS companies.

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