After figuring out what kind of animal SaaS is, and looking with wet eyes at the unfairly undervalued public giants, it’s time to look into the world of (so far) private SaaS startups. And there’s a lot to look at.
Things are different here. In fact, valuations of private companies today depend proportionally on their proximity to the moment of liquidity. In other words, the coveted IPO, which in the current reality, unfortunately, has lost relevance so far. And there is nothing surprisingly scary about that. For startups of earlier stages (seed and institutional A-B rounds) not much has changed, because they are still very far away from their public status, and it is a question of whether they will live to see it.
Interestingly, the estimates of such fledgling SaaS projects not only do not fall, but also manage to grow y/y! And there’s absolutely no sign of downruns; on the contrary, they are shrinking in number – from 11.7% to only 7.9% of all startups. It seems that they all have a product, but how well tested it is in times of crisis is the question. The current recession will show us who is best prepared for the new digital paradigm.
SaaS companies are certainly not neglected, and private startups are no exception. Venture capitalists are enticed by the predictability of such a subscription business model that monetizes an existing software solution. That’s where they direct their capital. Just look at these staggering statistics on the volume of funds raised and the number of private rounds conducted. To say that the SaaS market is in liturgical sleep doesn’t even make sense. After a record year in every sense of the word in 2021, SaaS startups in the US are expected to raise $72bn this year (2022). Of course this figure is lower than 2021 ($98bn), but still really impressive, especially in terms of the last decade rather than a direct percentage year/year comparison. This is exciting because 2022 volumes will come out higher than all but 2021! That’s what the Covid demand for SaaS solutions for remote working and large-scale digitalization of business processes is fueling.
And there’s plenty of powder to grow, SaaS is just starting to accelerate. Covid has become a much needed and timely kick in the pants for humanity, shutting us all in our homes and forcing us to hustle for a more efficient way to work together and do business online. In the current decade, the demand for SaaS products will only increase, because we can already clearly see the undeniable benefits to save operating costs and increase productivity. Just think how much we have saved on gasoline as a result of covid and how we have helped our planet with it… Such unexpectedly pleasant consequences are the result of random events in our lives.
Not many will lead this digital revolution, but sector and niche leaders among SaaS companies are already emerging. Those most likely to lead are united by the following list of characteristics:
Well-defined product market fit with loyal and constantly growing paying audience, who already can’t imagine their life (both professional and personal) without this product
- Continuous improvement of the product functionality through R&D (research and development)
- Expansion of the product line through related solutions and an increase in the addressable market (TAM)
- Significant cache stock, which is ideally enough for 2 years of operation
- Consolidate the market by resorting to M&A by raising additional, if possible, non-equity financing
The market is extremely challenging and nervous right now, but at the same time, there are opportunities that come up that only come up a few times in a lifetime. It was only possible to acquire private market technology leaders at throwaway prices, other than the covid bottom, only in the heat of the 2009 recession. When everything without much thoughtful consideration was put up for sale in a rush with rabid discounts. History is repeating itself today. All that remains now is to watch the newcomers and evaluate their SaaS marketing strategies
