The article examines the methodology behind ServiceTitan's reported 95% gross revenue retention (GRR) in its IPO documentation, noting that the approach excludes downsells and only accounts for complete churns, which can result in a higher GRR figure. While the 95% figure is impressive, the analysis suggests that a more typical annualized GRR for small businesses in the building trades would likely be lower, aligning with industry norms. The post How to have a 95% Gross Revenue Retention Selling SaaS to Small Businesses appeared first on SaaS Capital ..read more

Due to their compliance reporting requirements, there is plenty of data available about public SaaS companies. However, due to the size and funding of those companies, their metrics are typically not a good benchmarking metric for smaller, private SaaS companies. In order to provide peer-based benchmarking, SaaS Capital conducts a survey of private, B2B SaaS company metrics in the first quarter of each year. This post summarizes benchmarking data around the topic of Annual Contract Value (ACV). The post What is the Average Deal Size for Private SaaS Companies? appeared first on SaaS Capital ..read more

SaaS Capital attended SaaStr Annual 2024. This was the first SaaStr AI Summit and it lived up to its billing – discussions on all things AI dominated the event. As this hot topic continues to be top-of-mind for many operators and investors, we wanted to share some of our key impressions and takeaways from the panels as well as discussions we had with industry participants. The post Key Takeaways from SaaStr Annual 2024: Navigating AI’s Impact and Opportunities for SaaS Companies appeared first on SaaS Capital ..read more

Essentially, starting in 2022, any amounts spent by a U.S. company on software development were no longer permitted to be deducted against income, but instead had to be capitalized over several years.  This “tax trap” meant that many engineering-heavy SaaS companies operating near cash flow breakeven could suddenly appear profitable “on paper” (and on tax returns), leading to an income tax liability. The post Escaping the Tax Trap – Update September 2024 appeared first on SaaS Capital ..read more

It is important for SaaS finance teams to present a concise and coherent balance sheet so that executives, board members, and existing or potential investors can quickly comprehend the past and current performance of the company. The balance sheet for a SaaS company is less idiosyncratic than the income statement, but there are still several key things to be aware of when building and sharing this financial statement. This post illustrates what we think a SaaS balance sheet should look like. The post What Should a SaaS Balance Sheet Look Like? appeared first on SaaS Capital ..read more

This past week we published a 2024 update to our valuation white paper, “What’s Your SaaS Company Worth?” This paper and its associated data-driven model, revised several times over the past 11 years, are free resources for stakeholders in growing, private B2B SaaS companies. But does this model really work? We based the model on a statistical analysis of observed arm’s length equity transactions in our private dataset. There are roughly 60 such transactions, in companies averaging $14 million in annual recurring revenue (ARR), used in the latest update. Additionally, we use the then-current p ..read more

Median revenue growth rates have been decelerating steadily for public SaaS companies over much of the past decade. The deceleration was temporarily reversed during 2021 on the back of government support policies, rock bottom interest rates, and work-from-home pulling demand for digital services forward; however, it has since reasserted itself. This is the case whether we look at the median revenue growth rate across the SaaS Capital Index™ (SCI) or we segment public SaaS companies by Annual Recurring Revenue (ARR) size (segmenting by ARR allows us to control for the effect that revenue growth ..read more

At the end of 2023, TechCrunch ran a very influential piece that got forwarded around the SaaS world in a flash. The jolting punchline? The “Rule of 40 … is dead wrong,” proclaimed Bessemer’s Byron Deeter and Sam Bondy. Of course, outside of the tiny world of pre-IPO, venture-backed SaaS, the Rule of 40 was always misleading. But when Deeter declared it dead, the industry sat up and listened. At SaaS Capital, we had three main reactions. We agree with Deeter’s main contention: simply adding up growth and profitability as if they were interchangeable is wrong. Growth dominates. But, we have so ..read more

Median revenue growth rates of publicly traded Software-as-a-Service (SaaS) companies in the SaaS Capital Index™ (SCI) are decelerating, and have been for much of the past decade as these companies grew bigger. The more recent development is that growth rates are now decelerating for all company sizes, including smaller public companies, which historically had the highest growth rates in the Index. In the following post we cover these four key points:  Revenue growth rates are decelerating for public SaaS companies, in keeping with an established trend as companies mature: bigger compani ..read more

Artificial Intelligence will affect B2B SaaS very unevenly. Most companies will be affected only marginally, as AI becomes another tool in the toolbelt for technologists to deliver business value. However, there are some parts of the B2B SaaS ecosystem that will be utterly hollowed out by AI, as entire departments or functions disappear. We suggest here some mental models to use to help you estimate the risks to your SaaS business from the rise of AI. What we mean by “AI” What’s being called today “AI” (namely: generative language or image models, and good general-purpose classifiers) is a big ..read more