Recently Vista Equity Partners announced separate acquisitions of Pipedrive for $1.5 billion and Gainsight for $1.1 billion. Both startups are highly regarded as category leaders in SMB CRM and enterprise customer success, respectively. Let’s take a look at some quick data points from each.
Pipedrive – Sales CRM and Pipeline Management
Gainsight – The Customer Success Company
In today’s white-hot SaaS market with public multiples near all-time highs, why sell to a premium private equity firm instead of staying the course and raising more money? Here are a few ideas:
- Vista Track Record –
Vista Equity Partners has one of the best track records in the world for B2B SaaS. With their secret playbook and massive buying power, they have proven best practices and scale benefits. While they are known for running a tight ship, there are opportunities to improve the existing fundamentals.
- Early Employees and Investors Liquidity –
With the companies being at least a decade old, early employees are often looking for liquidity and early investors are often looking to close out their funds, return capital, lock in a big win, etc. While there is a huge amount of secondary available today, it won’t be at the premium that comes with a control position.
- Growth Investor Terms –
While some B2B SaaS startups are raising money at 100x multiples, and the BVP Cloud Index is at 20.3x, the reality is that modest growth (10-20%) startups are raising money at dramatically lower multiples. Put another way, there’s a huge premium for growth companies. Modest growth can imply a number of different things but the most common are that the total addressable market isn’t as big as desired, competition is strong, and/or churn is high. Instead of taking a lower valuation with potentially more onerous terms, selling a majority position gets primary and secondary capital at a more favorable valuation.
As SaaS startups continue to be in favor, and the economics highly desirable, look for more private equity activity in the space, especially next year. It’s a great time to be in SaaS.
Congratulations to the teams at Pipedrive and Gainsight for building incredible businesses.