We did an analysis looking at cash efficiency of the 73 most recent publicly traded SaaS companies at the time they went public. Using the equation above (revenue / [equity invested + debt — cash]), we were able to observe the cash efficiency of each company. The conclusion: if you can generate $0.60 cents of revenue each year per $1.00 of investment in SaaS, you’re at the median of successful SaaS businesses that went public. The average was $0.92. Below is the data.
The logic. Why does it make sense that $1 of investment generates only $0.60 of revenue? Because good SaaS businesses have net retention of 100%+, so that revenue is generated every year. Additionally, since recurring revenue is so valuable, SaaS businesses are valued as a multiple of revenue.
The best businesses generate ~$2. The top 15 publicly traded SaaS businesses in our set on average are generating $2.66 of revenue for every $1 of net investment. The dataset includes familiar companies like Zoom Video, JFrog, and DataDog. If we exclude SEMRush and Doximity, which have been extremely efficient, then the average falls to $2.07.
If you can generate $0.60 of recurring annual revenue per $1.00 of investment at scale, you’re on your way to joining the ranks of successful publicly traded SaaS companies.
Sammy is the Managing Partner and Co-Founder of Blossom Street Ventures. Visit us at blossomstreetventures.com and email directly at sammy@blossomstreetventures.comhttps://blossomstreetventures.com/metrics/
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