It takes $119mm of equity to get to a big exit (IPO) for your SaaS company. How do we know? We looked at the equity raised of 79 SaaS companies according to their S1’s, which is a securities filing companies must file prior to going public. The median equity invested was $119mm and median debt was only $2mm. The data as well as a few observations are below.
Series D is the final round. The $119mm 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; note however SurveyMonkey took on a lot of debt).
It can be done without much cash. 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.
Debt is uncommon. 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. Lenders 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. SurveyMonkey does stand out as a SaaS business that used a lot of debt and leases to finance growth ($412mm).
Overall, the data tells us building a large SaaS business that goes public is capital intensive, requiring on median $119mm and 4 major rounds over 9 years. This path isn’t for everyone so if it makes more sense to take on less investment, limit your dilution, and exit sooner but perhaps have a smaller exit, I know a VC for you <cough cough>.
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