The investment required to IPO in SaaS


We looked at the net investment of the past 73 SaaS IPOs to determine how much capital it took them to get to IPO. According to that data, it takes $301mm on median and $643mm on average. The average is skewed by Mcafee, Palantir, Snowflake, Dynatrace, Powerschool, Evercommerce, Informatica, and Slack, all of whom raised $1bln+. The specific formula for net capital (or “net investment”) is equity + debt — cash right before IPO. All data was pulled from S-1’s or 424b’s, which are securities filing made before going public. The data as well as a few observations are below.

It can be done without much cash. Some companies raised very little capital. Impressively, SEMrush required only $11mm of net capital. PubMatic got to IPO with only $33mm. Jfrog had net capital of only $41mm. Doximity has negative net investment because their cash on the books is greater than equity and debt raised, thanks to profits. Obviously the less equity you can raise, the better. Cash efficiency to minimize dilution is critical.

Debt is uncommon. SaaS companies have very little debt prior to going public. The median amount of debt was only $24mm. In our view this is more a function of VC wanting to invest more capital in strong performers versus banks unwilling to lend. Lenders are open to investing in SaaS businesses, but if a VC sees an opportunity to put more money to work and earn a return, they’ll do so. McAfee is the standout here, using $4.7bln of debt before going public, but note they were owned by private equity and are therefore not a fair indicator.

Revenue was growing 43%. On median, revenue at the time of exit was $167mm and growing 43% YOY. Average revenue was $286mm growing 52%. The average is skewed by McAfee, informatica, and Dropbox which were the only companies to go public with over $1bln of revenue. We don’t show the data (but will in a different blog).

Net Capital before IPO is increasing. The companies are shown in order of IPO by year. The last 10 companies of the dataset are therefore the most recent IPOs, and they had net capital of $184mm on median. The first 10 companies have a 2019 IPO vintage, and had on median $143mm of net capital before IPO.

Overall, the data tells us building a large SaaS business that goes public is capital intensive, and it’s not getting any cheaper. This IPO path isn’t for everyone so if it makes more sense to take on less investment, limit your dilution, and exit sooner but perhaps have a smaller exit, that’s a beautiful outcome.

Sammy is the Managing Partner and Co-Founder of Blossom Street Ventures. Visit us at blossomstreetventures.com and email directly at sammy@blossomstreetventures.com. 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.