Fresh Insights

Analyses, Musings & Observations

SaaS M&A multiples at ~8x

Alongside multiples of publicly traded SaaS companies, public SaaS acquisitions are some of the most relevant you can look at for deriving SaaS revenue multiples. These transactions are all cash, the financials are public and audited, and these are all control transactions so the data is about as pure as it gets. Below is the…
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Do investors really care about profitability? Maybe not

We’re hearing a lot about the drive for tech companies to generate a profit. We’re starting to think that’s all noise. As an example, Uber just reported their first profit ever and shares actually fell, presumably because growth was soft. Below are some of the financial highlights of their quarter (skip down three paragraphs if…
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Always open with a 3 year contract

If you’re a SaaS business selling to enterprise, chances are good you’re selling 1 year contracts, paid up front, with auto-renewal subject to a 60 day out and automatic annual price escalators. That’s a fine, traditional contract structure in SaaS, but more and more we’re seeing companies open with longer contract terms. For instance, MeridianLink…
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User based upgrades are wrong

If you’re depending on your customer base to add users as a way to drive upsells, you’re doing it wrong. Here’s why: Charge based on value, not seats. You shouldn’t be charging the customer based on the number of seats/users they have on your platform, or at least shouldn’t advertise it that way. You should…
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Is the Oddity IPO a tech IPO?

Oddity is a direct-to-consumer purveyor of in-house beauty products. They are tech-enabled and a significant portion of their workforce is dedicated to tech. They recently went public and the IPO is performing very well. While not a SaaS business which is what we invest in, below is a short summary of the most interesting bits…
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M&A multiples in Q2

M&A multiples in Q2 Software Equity Group is an investment bank that puts out research on SaaS markets. They just released their latest report on Q2. A summary is below but the full report may be found at https://softwareequity.com/research/. SEG does great work and has sold companies for us before. M&A volume is still strong. There…
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SaaS Contribution Margin & Customer Profitability

Bill.com, SumoLogic, and Confluent are public SaaS companies with excellent customer performance. In their prospectus’, each of these companies was generous enough to share beautiful contribution margin data. Specifically, Bill.com shows the contribution margin of customers acquired in 2017, and SumoLogic and Confluent do it for customers acquired in 2018. It’s a very nice illustration…
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Getting More out of Board Meetings

We’ve been a part of many board meetings. Below are some of the best practices that should be adopted for a smooth and productive meeting. Voting matters should be socialized prior to the board meeting. Don’t surprise board members with a vote they haven’t had time to think through, especially if the matter goes beyond…
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Price escalators in SaaS contracts

Maintaining net dollar retention over 100% is critical to the health of your SaaS business and getting a premium valuation. One easy hack to improve NDR is to include automatic price escalators in your annual contracts with customers. Our portfolio companies do this, and the automatic price increase upon renewal is anywhere from 5% to…
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Some Tier 1 VC are Hurting

Who are the most successful VC in SaaS? When we originally wrote this post last year, we thought it was the VC listed below which are shown in order of the number of SaaS IPO’s they have had going back to 2017. The list includes 46 major investors and at the top are Accel, Sequoia,…
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