Is SaaS going into a growth downturn? We took a look at YOY SaaS growth trends of 121 publicly traded SaaS companies going back to Q1 2021. The data and observations are below.
Current YOY growth. As of Q3 2022, SaaS companies are growing 21% on median with $501mm of LTM revenue (last twelve months). That’s a nice level of growth given the size of these firms.
Latest quarter is down. SaaS companies saw 5 straight quarters of growth before falling to 21% in Q3. In our view, one quarter a trend does not make, so we don’t think it’s time to sound the alarm yet. However, if Q4 shows another decline, then the SaaS space may be in a downturn. The last time there was a dip was Q2 2021, when SaaS growth fell to 19% from 22% in the prior quarter, so there is precedent for a dip, but note that growth resumed in the following quarter (Q3 2021 came in at 21%).
The average is similar. The average shows similar trends, with a dip in the latest quarter relative to where YOY growth has been since Q1 2021.
In your own SaaS business, watch out for elongating sales cycles, increased sales process complexity/hoops, reductions in customer budgets, and reductions in sales and marketing efficiency (measured as New ARR/S&M spend) as warning signs. If the warning signs are there, hunker down, find ways to cut costs, and pull back on the S&M spend. It’s ok to grow slower while staying cash efficient; save your cash for when the environment improves. It’s not ok to become less efficient to maintain growth. At some point that’s unsustainable.
Sammy is the Managing Partner and Co-Founder of Blossom Street Ventures. Visit us at blossomstreetventures.com and email directly at firstname.lastname@example.org. We invest in companies with run rate revenue of $3mm to $30mm, with year over year growth of 20% to 100%+ depending on revenue. We lead or follow in growth rounds and special situations like inside rounds, small rounds, rushed rounds, corralling investors with our term sheet, cap table clean up, and extensions. We can commit in 3 weeks and our check is $1mm to $4mm. Also visit https://blossomstreetventures.com/metrics/ for always up-to-date SaaS metrics.