Cash efficiency in SaaS

Cash efficiency is one of our favorite metrics in SaaS. Measured as recurring revenue in the latest year / equity + debt invested, it is every bit as important as growth.

We did an analysis looking at the revenue, equity, and debt of 94 publicly traded SaaS companies at the time they went public. Using the equation above (revenue/[equity invested + debt]), we were able to observe the cash efficiency of each company. The conclusion: if you can generate $0.57 cents of revenue each year per $1.00 of investment in SaaS, you’re on par with successful SaaS businesses that went public. Why does it make sense that $1 generates $0.57? Because good SaaS businesses have net retention of 100%+, so they generate that revenue every year. Below is the data.

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A few observations:

There are two standouts. Veeva Systems and Atlassian were built with very little investment, generating $14.34 of revenue per year for each dollar invested and $13.26 respectively. They’re so prolific that if we pull them from the data set, the average falls from $1.01 to $0.67. The median of $0.58 is what we look to as the relevant metric, so that outliers have no impact.

The latest IPO’s aren’t efficient. The latest SaaS businesses to IPO haven’t been very efficient. Livongo Health’s efficiency is $0.27, Health Catalyst is an anemic $0.13, Slack is only $0.27, Crowdstrike is $0.37, and Survey Monkey is $0.35. Not every new company has been inefficient: Pager Duty is at $0.51 and Zoom is at a strong $1.87. The inefficient have outweighed the efficient though.

If you can generate $0.57 of recurring annual revenue per $1.00 of investment at scale, you’re on your way to joining the ranks of successful publicly traded SaaS companies.

Visit us at blossomstreetventures.com and email us directly with Series A or B opportunities at sammy@blossomstreetventures.com. Connect on LI as well. We invest $1mm to $1.5mm in growth rounds, inside rounds, small rounds, cap table restructurings, note clean outs, and other ‘special situations’ all over the US & Canada.

Written by

co-founder at Blossom Street Ventures

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