SAN FRANCISCO, Oct. 17, 2016
SAN FRANCISCO, Oct. 17, 2016 /PRNewswire/ -- Pacific Crest Securities, the technology specialists of KeyBanc Capital Markets, today released the results of its 2016 Private SaaS Company Survey, which show robust growth rates for private Software-as-a-Service (SaaS) companies. The survey also measured the tradeoff between growth and profitability faced by respondents, finding that one-in-four meet or exceed "The Rule of 40%," a new and increasingly popular benchmark as investor attitudes have shifted away from "growth at any cost."
Of the more than 330 private SaaS companies surveyed, the median GAAP revenue growth rate in 2015 was 44 percent, with 48 percent projected in 2016. When excluding companies with less than $2.5 million in revenue—those which tend to grow at a faster rate due to size—the median GAAP revenue growth rate in 2015 was 35 percent, with 36 percent projected in 2016.
In addition, one-in-four private SaaS companies of scale are operating at or above The Rule of 40%, a much discussed key measure of best-in-class SaaS company performance. The Rule of 40%, which is calculated by adding a company's GAAP revenue growth rate and profitability margin, sets an important threshold for excellence as valuations in the sector have been more heavily scrutinized by investors.
"Growth among SaaS companies remains strong, and many are operating at the exceptional level investors have come to expect," said David Spitz, managing director, software & security at Pacific Crest Securities, and primary author of the survey. "Operating strategies in the SaaS space continue to evolve, but clearly over the last year we have seen a greater sensitivity to balancing growth objectives with the need for developing strong unit-level economics. With our annual SaaS Survey, we are providing invaluable tools to help management teams and investors better understand what successful SaaS companies look like, along with the underlying strategies and trends that are driving their performance."
The survey further analyzed key performance data of the companies that are operating at or above The Rule of 40%. Respondents currently meeting or exceeding that benchmark have a lower annual gross dollar churn compared to their counterparts (5.6 percent vs. 10.6 percent) and a lower new customer acquisition cost (CAC) ratio ($1.06 vs. $1.33), among other findings.
Added David Skok, investor at Matrix Partners, author of the SaaS-focused blog forentrepreneurs.com and active supporter of the survey for the past five years: "It's very important that SaaS companies are able to benchmark and track core metrics. Most SaaS models require upfront sales and marketing costs and delayed revenue collection, leading to a cash flow trough where companies are losing money in the early years. This survey enables SaaS companies to benchmark core metrics to know if they're on track and whether their business will work in the long term."
The annual SaaS Survey is used to identify the operational and financial metrics that benchmark success among private SaaS companies. Findings from the survey cut across virtually every aspect of SaaS operations, from go-to-market selling strategies, customer retention rates and customer acquisition costs, to operational management, growth and margin structures. More than 330 senior executives from private SaaS companies around the world participated this year. Survey results are available at www.pacific-crest.com/2016-saas-survey/.
About the Pacific Crest Private SaaS Company Survey
About KeyBanc Capital Markets
KeyBanc Capital Markets provides deep industry expertise and capital markets and advisory solutions to companies in targeted verticals which include Consumer & Retail, Healthcare, Industrial, Oil & Gas, Real Estate, Utilities, Power & Renewables, Diversified Industries, and Technology, through Pacific Crest Securities. With over 800 professionals across a national platform, the firm has more than $27 billion of capital committed to clients. Our award winning Equity Research team provides coverage on more than 775 companies. KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC ("KBCMI"), and KeyBank National Association ("KeyBank N.A."), are marketed. Pacific Crest Securities is a division of KBCMI. Securities products and services are offered by KeyBanc Capital Markets Inc. and its licensed securities representatives, who may also be employees of KeyBank N.A. Banking products and services are offered by KeyBank N.A.
KeyCorp's (NYSE: KEY) roots trace back 190 years to Albany, New York. Headquartered in Cleveland, Ohio, Key is one of the nation's largest bank-based financial services companies with assets of approximately $101 billion as of June 30, 2016. The acquisition of First Niagara Financial Group, which became effective on August 1, 2016, added assets of approximately $40 billion, based on June 30, 2016 balances. Key provides deposit, lending, cash management, insurance and investment services to individuals and small and mid-sized businesses in 15 states under the name KeyBank National Association and First Niagara Bank, National Association, through a network of more than 1,200 branches and more than 1,500 ATMs. Key also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets trade name. For more information, visit www.key.com KeyBank and First Niagara Bank, National Association are Member FDIC institutions.
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SOURCE KeyCorp; Pacific Crest Securities