SaaS Statistics and Reflections
We have a live software deal that has allowed me to do a lot of research on the SaaS market over the past few weeks. Of the various stats I have read while prepping the memo for our deal, I thought the ones below were especially worth nothing.
- If a SaaS company grows at 20% or less annually, it has a 92% chance of failure.
This stat caught my attention early on in my research. Remember that it is common for startups to double or triple in size YoY until they hit $5mm ARR. However, 20% doesn’t seem that low in terms of growth numbers. The research suggests otherwise, and this figure should be referenced when evaluating any future software investment.
- Average startup spends 92% of first-year revenue on CAC
Not really worth commenting on, but I thought it was high enough to include.
- Median annual churn for private SaaS companies with under $10mm in revenue is 20%
This was higher than I anticipated. Most software entrepreneurs would agree that retention is the most important metric they monitor. High retention levels signal that the quality and customer appreciation of your product is high. I assume that this data is slightly skewed given that early-stage companies have less traction, less customer loyalty, and haven’t worked out all the bugs of their product, but I still thought that 20% attrition seemed high.
- 44% of SaaS companies offer a free trial
Have to combat office complacency somehow.
- 27% of SaaS companies were able to raise Series A’s with $0 MRR
This is shocking. I wasn’t able to source the data, but I can say with 99% confidence that the investors of these rounds are not from the East coast.
- Financial SaaS is the second most expensive category of fintech behind Capital Markets (Liquidity Venues)
Financial SaaS companies in the public market trade at 10.4x EV / revenue. The category has a median PE ratio of 27.1 which despite being considerably higher than the rest of the market, is lagging behind many of the other publicly-traded comps.
- No software company margins = no software company multiples
Good lesson from the past two months of valuation chaos in the private equity markets. Fred Wilson wrote a really good blog post earlier this week detailing the emphasis on margins when valuing companies— a statistic that has larger been ignored in later-stage rounds over the past several years.