Fresh Insights

Analyses, Musings & Observations

The SaaS M&A Report – Q3

We recently got Software Equity Group’s SaaS M&A Snapshot for Q3 2019. SEG is an investment bank focused SaaS companies and they put out fantastic data on what they’re seeing in the market. Key observations from their latest report are as follows: Deal volume is still high. There were 314 M&A transactions in SaaS in…
Read More

The Series A Valuation Report – Q3

What valuations are founders asking for when they raise their Series A? Since May 2018, we’ve had conversations with 517 companies about their Series A rounds. Below is aggregate data on these raises with names redacted to preserve confidentiality. Figures like revenue, valuation, and round size are medians from conversations with founders. Remember the valuations…
Read More

SaaS multiples are holding strong

SaaS multiples are higher than they’ve been since we’ve tracked the data (Q4 2014): of the 79 SaaS companies we follow, the average public SaaS business is trading at 11.6x revenue while the median is 8.8x. Interestingly, the gap between the average and median continues to be large (2.8x), meaning more attractive SaaS companies are…
Read More

How to measure SaaS sales efficiency

There are many ways to measure SaaS sales & marketing efficiency. One of the simplest is to look at revenue booked over a given time period divided by sales & marketing spend during the period (New Rev/S&M). While the sales & marketing expense in a period may not necessarily be attributable to a given period’s…
Read More

Find your churn floor

Peloton’s prospectus (known as an S1) is fantastic in that the company shares a lot of data about the business. One trend however, really jumped out at us: while user engagement is increasing dramatically, churn is not declining. Below is a more detailed graphic which shows the trend. As you can see, old cohorts are…
Read More

Startups are hard

You probably won’t be a success from day 1. You’re going to struggle and may even come close to failure (more than once). The good news: there are plenty of examples of companies that had setbacks and bumps along the way, but were still a great success. Docusign is one such success story. Docusign went…
Read More

The most important metric in SaaS

One SaaS metric we monitor closely is net dollar retention. It compares ARR from a set of subscription customers against the same metric for those subscription customers from the prior year, so it reflects customer renewals, expansion, contraction and churn. Formulaically for customers with true annually contracted revenue, it’s beginning of period revenue + upgrades…
Read More

Customer acquisition cost trends

One of the most important metrics for B2C companies is customer acquisition cost or “CAC”. In order to understand how CAC trends for successful tech companies, we took a look at publicly available data for B2C companies which disclosed CAC. While we found only 4 companies that mention the metric, the data was interesting, and…
Read More

The beauty of growing cohorts

Before we get into the meat of this post, first, a quick refresher: a cohort is a group of customers acquired at a particular time; for instance the “January 2018” cohort would be those customers who were acquired in January 2018. One very important measure in SaaS is cohort growth. Often times this is depicted…
Read More

The right contribution margin in SaaS

Contribution margin is one of the most important metrics in SaaS. It’s revenue from a certain set of customers (a cohort) less the cost of acquiring and servicing the customers over time.   Customers are generally grouped into annual cohorts – in other words, customers acquired in 2011 are the 2011 cohort, those acquired in 2012 are…
Read More