ARR Growth for SaaS IPOs
Most public SaaS companies are valued on a next-twelve-months (NTM) revenue multiple, and while revenue is also an important metric for private companies, many investors focus on ARR (annual recurring revenue). ARR is not typically reported by public SaaS companies, but it can be derived easily by multiplying quarterly subscription revenue by four. As I wrote here, for a SaaS company to get public they usually need to hit ~$100M of ARR, but how fast do they need to grow? I took a look at ~40 public or acquired high-growth SaaS companies and benchmarked their quarterly ARR from their S-1’s (companies usually report at least 8 quarters).
The chart below has the ARR ramp and net new ARR median and average added each quarter. According to this data set, SaaS companies need to be north of $100M of ARR, growing at least 60%+ YoY and adding $10M+ of net new ARR a quarter to get public.
Average and Median Quarterly ARR / Net New ARR ($M)
How about the more recent IPOs? The chart below shows the ARR ramp of the 5 enterprise software IPOs that filed this year. Note AppDynamics was acquired before they started trading.
2017 Enterprise Software IPOs Quarterly ARR ($M)
While the median ARR is ~$100M and growing 60%+ YoY, there is a wide variation among these 40 companies. Atlassian was almost at $400M of ARR and Rally Software was at $50M. Both companies had very successful offerings. I expect the next wave of SaaS IPOs to fall in the higher end of that range given companies are waiting longer to go public.
To receive these posts by email, click here.
***For back-up, here is a table with the ARR ramp (sorted by ARR) for each of the 41 companies I benchmarked — it includes the ARR at the IPO quarter and preceding reported quarters, as well as annual and quarterly growth rates.
