Quarterly SaaS Margins through Q4

Are SaaS companies burning less cash? We looked at the net dollar retention of every SaaS company that has IPO’d since October 2017 (64 companies). The data is below and shows a that indeed companies are cutting costs and operating margin is improving. In Q1 2022, operating margin on median was -30%. As of Q4 2022, the operating margin has improved to a median of -21%. So, over three quarters in 2022, operating margin improved by 9 percentage points. The dollar data below is in millions.

If the goal is truly profitability, it will be quite a long haul. The first dollar of cost is much easier to cut than the last dollar, and we do expect gains in operating margin to slow. We do not expect the sector to attain profitability on median, but the efficiency at which these companies grow will improve to the point where investors once again get excited about the space. Those that cant improve to an acceptable level will likely be acquired at attractive valuations.

Sammy is the Managing Partner and Co-Founder of Blossom Street Ventures. Visit us at blossomstreetventures.com and email directly at sammy@blossomstreetventures.com. We invest in companies with run rate revenue of $3mm to $30mm, with year over year growth of 20% to 100%+ depending on revenue. We lead or follow in growth rounds and special situations like inside rounds, small rounds, rushed rounds, corralling investors with our term sheet, cap table clean up, and extensions. We can commit in 3 weeks and our check is $1mm to $4mm. Also visit https://blossomstreetventures.com/metrics/ for always up-to-date SaaS metrics.