Fresh Insights

Analyses, Musings & Observations

SaaS multiples in Q4

SaaS multiples are higher than they’ve been since we’ve tracked the data (Q4 2014): of the 80 SaaS companies we follow, the average public SaaS business is trading at 11.98x revenue while the median is 9.49x. Interestingly, the gap between the average and median continues to be large (2.5x), meaning more attractive SaaS companies are…
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Strategic investors can be anything but

Often we hear founders get excited about strategic investors — corporations making venture investments — because the founders think the strategic investor will assist with the product roadmap, become a customer, intro the company to new customers, add credibility, and potentially acquire the company at some point. However, strategic investors have not been a benefit to our companies. Below…
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Measuring ecommerce health

For any B2C business, cohort performance is critical. A cohort is a set of customers acquired during a certain time period — for instance the January 2018 cohort is all customers acquired in January 2018. Key metrics in evaluating cohort performance include looking at the marketing spend it took to acquire the cohort, the amount of money…
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The impact of partnerships in SaaS

Bill.com recently went public. Their software automates complex back-office financial operations for small and midsize businesses (SMBs). One of the charts in their prospectus shows the major milestones in the company’s history. The chart is below.     The thing that really stood out to us about this graphic is that the company makes it…
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The economics of a saas customer

Bill.com recently went public. Their software automates complex back-office financial operations for small and midsize businesses (SMBs). One of the charts in their prospectus shows the revenue growth and contribution margin of customers acquired in 2017; it’s a very nice illustration of the first three years of a SaaS customer in a healthy SaaS business….
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What good net dollar retention looks like

Net dollar retention is the most important metric in SaaS. We find that companies with great net dollar retention (100%+) grow quickly and are more cash efficient than those with mediocre or poor net dollar retention. They’re also far more attractive to acquirers and VC. Sprout Social, which provides software for managing social media and…
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Why social media matters to your business

Recently, Sprout Social, which provides software for managing social media, went public. Their prospectus highlighted a number of trends in social that directly impact businesses. We thought those trends were important, so we share them below verbatim. We have invested in the space ourselves via our portfolio company Soci (www.meetsoci.com), who we view as best…
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S&M spend doesnt scale in SaaS

Does the Sales & Marketing function at big software companies scale? The data says no. We looked at new revenue divided by sales and marketing spend of SaaS companies at the time they went public. We then compared that figure to the same calculation the year prior to going public. In other words, if in…
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The state of software M&A

I met with a banker yesterday and got his take on the state of the software M&A market. The banker’s observations on the state of the SaaS M&A market are as follows: Private equity is leading the way. Most deals this firm has completed have been majority recaps with private equity groups. PE is paying multiples…
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Average years from founding to exit

We looked at how long it took 167 publicly traded tech companies to exit. Specifically, we used their S1’s — a securities filing a company makes before IPO — to find out the year each company was founded and compared it to the last year financials were released as a private company. The data is below. Time depends on…
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