If you haven’t subscribed to SaaS Capital’s emails, you should. They put out fantastic data on the SaaS market. The latest release came from Managing Director Rob Belcher. In it, he shares some observations from the past year. The below is verbatim from Rob.
· “SaaS is about to enter its third decade, and technical debt hasn’t really been an issue before because everyone’s product was so new. It is now definitely becoming a concern but cannot be defined to a specific point; it is more of a continuum with an eventual tipping point. The tipping point arrives when you can no longer update the existing codebase and must ask customers to “migrate” to the next version. Forced migration is an excellent shopping opportunity for customers.”
· Surprisingly, across the hundreds of businesses we have worked with, we have seen no obvious correlation between growth rate and burn rate.
· Private equity recapitalizations of SaaS companies are more popular than ever and offer a new myriad of potential buyers. However, in our experience, no two recaps are the same; they are customized with unique terms, carve outs, securities, preferences, share re-ups, and more. “Sellers” in a recap need to be aware of all the different nuances, and perhaps consider a SaaS-specific banker to help navigate.
· We generally have seen fractional CFOs to be very effective.
· Implementing NetSuite will not solve reporting problems. Plenty of companies under $20 million in revenue have excellent reporting with QuickBooks, or perhaps QuickBooks + SaaSOptics.
· A new ratio we’re thinking more about: Retained Revenue ÷ Customer Success Cost.
· In January, the US Patent and Trademark Office changed its criteria around software, which had traditionally been hard to patent. It is much easier now, and while maybe not a core strategy, you should at least be aware of these changes and consider IP offense and defense in 2020 and beyond.
· We continue to believe that the economy and capital markets will tighten over the next several years. However, there is now a large pool of committed PE dollars to support the stronger SaaS companies through a downturn. Related, we have recently seen more support for profitability, or at least more controlled losses, among the VC and startup communities that have previously decreed growth at all costs.”
These insights are spot-on, and SaaS Capital has the portfolio to know: they’ve been around 10 years and have made loans to hundreds of SaaS companies. They lend $2 million to $10 million to B2B SaaS companies with $3M in ARR and up, based in the US, UK, and Canada. Big thanks to Rob and SaaS Capital for continuing to put out such good data. This link will take you to their post.
Visit us at blossomstreetventures.com and email us directly with Series A or B opportunities at firstname.lastname@example.org. We invest $1mm to $1.5mm in growth rounds, inside rounds, cap table restructurings, note clean outs, and other ‘special situations’ all over the US & Canada.