We looked at the equity and debt raised as well as remaining cash of the past 58 SaaS IPOs to determine how much net capital it took them to get to IPO. According to that data, it takes $328mm on median and $600mm on average. The average is skewed by Mcafee, Palantir, Snowflake, Dynatrace, Powerschool, Evercommerce, and Slack, all of whom raised $1bln+. The specific formula for net capital (or “net investment”) is equity + debt — cash right before IPO. All data was pulled from S-1’s or 424b’s, which are securities filing made before going public. The data as well as a few observations are below.
It can be done without much cash. Some companies raised very little capital. Impressively, SEMrush required only $11mm of net capital. PubMatic got to IPO with only $33mm. Jfrog had net capital of only $41mm. Doximity has negative net investment because their cash on the books is greater than equity and debt raised, thanks to profits. 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 $24mm. 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, they’ll do so. McAfee is the standout here, using $4.7bln of debt before going public, but note they were owned by private equity and are therefore not a fair indicator.
Revenue was growing 55%+. On median, revenue at the time of exit was $198mm and growing 45% YOY. Average revenue was $303mm growing 52%. The average is skewed by McAfee and Dropbox which were the only companies to go public with over $1bln of revenue. We don’t show the data (but will in a different blog).
Net Capital before IPO is increasing. The companies are shown in order of IPO by year. The last 10 companies of the dataset are therefore the most recent IPOs, and they had net capital of $308mm on median. The first 10 companies have a 2019 IPO vintage, and had on median $143mm of net capital before IPO.
Overall, the data tells us building a large SaaS business that goes public is capital intensive, and it’s not getting any cheaper. This IPO 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, that’s a beautiful outcome (and one Blossom Street Ventures is well suited for! Forgive our shameless plug).
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