Select insights from our recent comprehensive study of enterprise software IPOs between July 2013 and Oct 2019
PART TWO IN OUR SERIES ON RECENT SOFTWARE IPO PERFORMANCE
In our prior post , we outlined both our methodology and the resulting findings of our investigation into drivers of IPO performance.
The metrics included in this initial correlation analysis were limited to those that were universally reported across companies, due to the bias implicit in self-selectively disclosed metrics.
Which leads us to our next set of questions related to additional metrics linked to business performance — most prominently: What about retention?
We continue to believe that net retention is a critical measure of business health for SaaS companies and have seen many anecdotal examples of IPO success across software companies with strong retention.
Acknowledging, once again, that reported net retention likely skews high given the optionality of disclosure, median performance hovers right around ~120% across all companies analyzed, with ‘high performer’¹ companies reporting median net retention rates of ~130% and as high as ~190% prior to IPO².
To Disclose or Not To Disclose
So, are companies better off reporting retention, if it is within this range?
Our view is yes — in both private and public markets, net dollar retention is critically important to evaluating SaaS companies and therefore should be disclosed. Indicative of business fundamentals with non-linear contributions to growth, it can also provide a certain degree of longer-term predictability to investors.
Potentially reflective of this dynamic, we are increasingly seeing the disclosure of net retention adopted as a standard in S-1s and 424B4s.
81% of the 59 companies evaluated chose to disclose net retention at time of IPO — over 70% of whom continued to report on it on a quarterly basis³
But let’s take a look at which other metrics related to customer dynamics and unit economics are typically disclosed, even when optional:
The vast majority of companies (93%) also disclosed absolute number of customers at time of IPO⁴
CAC is the least commonly reported metrics, with only 2% of software companies reporting each over the past 6 years⁵
Disclosure optionality aside, the importance of strong unit economics cannot be over-emphasized, and whether or not to disclose these metrics is perhaps secondary to having strong aggregate performance across them.
The above is a mere subset of the insights from our in-depth IPO study that we shared with our portfolio companies earlier this year. We also provided actionable findings related to underwriter economics and banker selection, metric-specific analyses of performance leading up to IPO, guidelines related to IPO process and preparation, and several detailed case studies. Please contact us for more information.
Notes & Sources
 “High performing” is simply a conceptual label we have designated to this group of companies, which have been subjectively selected generally because they are either top quartile multiples at IPO and increase in multiple to today, or multiple >5x at IPO and has more than doubled to today. The selected companies may not be exhaustive of all companies that meet such criteria.
[2–5] Based on ICONIQ Analysis of data from FactSet, Public Filings for Software IPO June 2013 to Oct 2019 — Does not include companies that have been acquired since IPO