Quarterly SaaS Cash Efficiency Data
Are SaaS companies spending less to add new revenue? We looked at the ‘cash efficiency’ of every SaaS company that has IPO’d since October 2017 (64 companies). The definition is new revenue/operating loss, so the higher the figure, the more revenue is being added for each dollar of loss. Formulaically, in Q4 it would be [(Q4 2022 revenue — Q4 2021 revenue)/Q4 operating loss] in order to get an annualized feel for efficiency. Note that for companies that are profitable, this ratio doesn’t apply and we have marked them as ‘profitable’. The data is below (dollars are in millions).
Over the past 5 quarters, SaaS cash efficiency has been good, but not improving. In Q1, on median companies added $0.71 of new revenue for each dollar of operating loss while in Q1 2022 the figure was $0.75. In Q4, the figure was $0.88, but this is due more so to seasonality of the typical SaaS cycle.
Why is it ok to generate less than $1 of revenue for each dollar of operating loss? The reason is SaaS revenue is typically very high quality, paid up front, contracted for at least 1 year, and most importantly recurring. The recurrence means once you’ve got the customer, you do not lose them and they become an annuity. The median net dollar retention of these companies was 115% in Q4, meaning that in future years the revenue from each customer actually grows over time. The high quality of this revenue stream is why SaaS trades at a premium to other industries.
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.
