Notes from SaaS Growth and the Cost of Capital

SaaS Capital has some great resources for Software-as-a-Service (SaaS) companies with one of them being a white paper titled SaaS Growth and the Cost of Capital. ExactTarget in the 8x revenue club is a great example of the SaaS business model, which is one of my favorites. Here are some notes from SaaS Growth and the Cost of Capital:

  • 13 public SaaS companies tracked by Pacific Crest Securities have increased 40% in value from the beginning of 2008 to the beginning of 2011
  • Best valuations come from SaaS companies growing more than 25% annually in a large market
  • Main driver for valuations comes from revenue growth rate (not profit growth)
  • Three of the four fastest growing SaaS companies are spending more than 40% of revenue on sales and marketing
  • When today’s market leading SaaS companies were in expansion stage before going public they spent 60 – 70% of revenue of sales and marketing and took on outside investment
  • Cloud technologies are contributing to higher incremental gross margin for SaaS companies (along with Moore’s Law)
  • High-growth SaaS businesses are worth three to five times more than slow growth ones

The author of the white paper really drives home the point that growth for SaaS companies results in a huge premium and should be seriously pursued.

What else? What are your thoughts on SaaS growth and thd cost of capital?

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