Cash Lifecycle for High-Growth SaaS Companies?

SaaS businesses have a great model — pay to acquire customers up front then reap the benefits over time through long-term subscription contracts. The downside of this is it’s usually very expensive to scale into a public company. Managing cash is vital for any growth company, but especially for high-growth SaaS companies where there are heavy investments in customer acquisition and product development. Given the questions from portfolio companies and other founders, I wanted to understand what is the cash lifecycle of precedent high-growth public SaaS companies? I looked at a group of almost 45 high-growth SaaS companies and charted their average cash positions over time — from initial fundraising to post IPO. I also stripped out secondary transactions in the private markets (where I could) so that it was apples to apples with regard to dollars going to company balance sheets. Take a look at the chart below which summarizes the average cash lifecycle of almost 45 companies.

SaaS Company Cash Lifecycle Averages

Source: Pitchbook and company filings. Data includes averages from the following companies; Alteryx, AppDynamics AppFolio, Appian, Apptio, Atlassian, BlackLine, Box, Cloudera, CornerstoneOnDemand, Coupa, Cvent, Demandware, Five9, Eloqua, ExactTarget, Fleetmatics, Hubspot, Instructure, LogMeIn, Marketo, Mindbody, MuleSoft, NetSuite, New Relic, Okta, OPOWER, Paylocity, Q2, SuccessFactors, Rally, Responsys, Salesforce, ServiceNow, Shopify, Talend, Twilio, Veeva, Wix, Workday, Workiva, Yext and Zendesk.

There is a lot of variation within this group — for example, Veeva, a vertical software company focused on the life sciences industry, raised only $7M in primary capital and at IPO had $53M on the balance sheet, implying they added roughly $45M of cash prior to IPO. On the other hand, Cloudera, a big data vendor (more info here), raised almost $700M in primary capital and had $255M on their balance sheet at IPO, implying they burned through over $400M.

As you can see, it takes on average~10 years to get public and SaaS businesses burn through almost $100M. Companies want a buffer of cash so they raise on average almost $150M in primary capital and debt. Interestingly, the total average amount of equity and debt raised from the group is the same as the average IPO size, which is quite a coincidence. Given there are sometimes secondary components of IPOs, debt paydown (most of these companies didn’t have any debt) and other expenses, the average net increase in cash from an IPO is $121M, and companies end up with almost $175M on their balance sheets.

Given the large SaaS market opportunity and the many billions of dollars being invested to capture it, I expect we see these numbers get even bigger over time.

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