It takes $107mm of equity to get to a big exit (IPO) for your SaaS company. How do we know? We looked at the equity raised of 73 SaaS companies according to their S1’s, which is a securities filing companies file prior to going public. The median equity invested was $107mm. The data as well as a few observations are below.
-The $107mm was raised across 4 rounds on median, through the Series D. The most number of rounds required went all the way to Series H (8 rounds) and some companies got to IPO with only a Series A (1 round).
-Some companies raised very little equity. Impressively, Veeva Systems which filed their S1 in 2013 raised only $9mm of equity. Obviously the less equity you can raise, the better. Cash efficiency to minimize dilution is critical.
-SaaS companies have very little debt prior to going public. The median amount of debt was only $2mm. In our view this is more a function of VC wanting to invest more capital in strong performers versus banks unwilling to lend. Banks are open to investing in SaaS businesses, but if a VC sees an opportunity to put more money to work and earn a return, he will so long as he has influence/sits on the board.
-The median level of revenue was $89mm. Indeed the median level of revenue needed to go public has increased over time. For companies that filed their S1 in 2017, 2016, and 2015, median revenue levels each year were $134mm, $128mm, and $129mm. Alternatively, the median levels in 2012, 2011, and 2010 were only $87mm, $81mm, and $45mm. The bar to go public/exit is rising.
-As the level of revenue needed to go public/exit has risen, the level of equity needed to get there has of course gone up. For instance, median equity raised for companies that filed an S1 in 2017, 2016, and 2015 was $340mm, $169mm, and $160mm while median equity in 2012, 2011, and 2010 was only $94mm, $77mm, and $92mm. Indeed, the equity levels are increasing as more revenue is needed to go public.
We hope this data is helpful to you in understanding that: i) the bar to go public/exit has risen as companies are getting larger; ii) the amount of equity needed to get to those revenue levels has logically risen as well; and iii) building a SaaS business is capital intensive, requiring on median $107mm and 4 major rounds.