R&D spend is 24% of revenue. Leading Median spend is $27mm. The median level of revenue at IPO for these SaaS businesses was $122mm so with 24% of revenue going to R&D, that means R&D spend was $27mm on median at the time of IPO. That’s a lot of dev talent.
The range of spend is wide. Hortonworks and Castlight spent more on R&D than they generated in revenue, with R&D/revenue of 110% and 117% respectively. On the other end, Paycom software spent only 2% of revenue on R&D, and that business did $108mm in revenue prior to IPO. Similarly, Tabula Rasa spent only 2% of revenue on R&D.
Smaller businesses spend more. Not surprisingly, given the fixed cost nature of R&D, the 10 smallest companies by revenue spent 41% of revenue on R&D while the 10 largest spent 27%, closer to the overall median. Smaller and earlier businesses are likely going to have to expend a larger percent of revenue on R&D than their more mature peers.
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