14th annual report suggests that the macroeconomic
climate is likely to continue to impact ARR growth and
profitability in 2024
SAN FRANCISCO and MENLO PARK, Calif., Dec. 18, 2023 /PRNewswire/ -- KeyBanc Capital
Markets (KBCM), the corporate and investment banking unit of
KeyCorp in partnership with Sapphire Ventures, a global software
venture capital firm backing companies of consequence, released
results from KBCM's Technology Group's 14th annual
Private SaaS Company Survey, the benchmarking report by which the
SaaS industry measures financial and operating performance.
This year's survey revealed trends of decelerated growth
and a transition towards profitability in 2023, a resounding theme
throughout the report's findings. In addition, the report uncovered
that sales and marketing could potentially see some lagging effects
although, in the near term, there is an overall feeling of optimism
in more productive go-to-market (GTM) teams after industry
wide-adjustments.
Key trends identified in this year's report include:
- Continued budget cuts and conservative buying patterns are
driving customer churn, longer deal cycles and reduced contract
values, leading to lower growth rates.
- Annual Recurring Revenue (ARR) growth decelerated from 35% in
2022 to 26% in 2023
- Net Revenue Retention declined from 108% in 2022 to 104% in
2023
- While conversion rates are expected to drop across the
marketing funnel, GTM teams are striving to drive revenue
efficiency.
- Gross and Net Magic Numbers of 0.7 and 0.5, respectively, along
with a median ~23-month customer acquisition cost (CAC) payback
period in 2022
- The tight spending environment is forcing teams to be more
accurate with their efforts given limited resources
- Public market software valuations are returning to more
normalized levels in 2023 at ~6x Next Twelve months (NTM) revenue
compared to the all-time highs of 2021.
- The Rule of 40 is more important to valuation than it was in
the free money era, but growth still matters as investors
underwrite future cash flows at scale
- Private market financing activity and multiples continue to
show strength despite macroeconomic headwinds
- Lower growers (<50%) have seen private market multiples
compress toward normalized public market multiples, but higher
growers (>100%) have been more resilient, still commanding super
premium multiples (29.9x NTM median)
"Primarily driven by the availability of capital and a positive
economic outlook, companies invested to pursue aggressive growth
targets in 2022. However, as the market became more challenging and
growth did not play out as expected, many companies were forced to
scale back operations and shift their focus from growth to
profitability," says Scott Peterson,
managing director, Software Investment Banking at KeyBanc Capital
Markets. "Despite this, we continue to see strong long-term
prospects for the sector, due to factors such as a continued move
to the cloud and increased adoption of artificial
intelligence."
"Sapphire Ventures is pleased to partner with KeyBanc Capital
Markets on this invaluable report and reference point for the
start-up SaaS industry. As 2023 comes to a close, the findings are
no surprise as we saw B2B software companies adjust to a new normal
amidst difficult economic times," said Steve Abbott, partner, Sapphire Ventures. "Over
the past year, we saw the cost of capital rise significantly, which
resulted in the top companies focusing more than ever on achieving
efficient growth metrics. We see this trend continuing into
2024."
Among private SaaS companies, only 15 percent of this year's
respondents operated at or above The Rule of 40, a key benchmark of
"best-in-class" SaaS company performance, which is calculated by
adding a company's growth rate and profitability margin. Last year,
more than one third of respondents noted that they operated at or
above The Rule of 40 in 2021, an indication that companies were
less efficient with their spending and/or did not achieve their
growth targets in 2022.
The KBCM and Sapphire Ventures Private SaaS Company Survey
provides credible operational and financial benchmarking data for
executives and investors in SaaS companies of all sizes. This
includes everything from GTM selling strategies, historical and
projected growth, and retention rates, to operational management
and margin structures, as well as proprietary data on valuation and
exit expectations. This year's survey polled senior executives at
more than 100 privately held global SaaS companies with a median
2022 ARR of $25.5 million in several
sectors including infrastructure management, fintech,
cybersecurity, communications, data infrastructure, vertical market
application and horizontal application. To view the full survey
results, methodology and to see a deeper analysis of the findings,
visit us at http://www.key.com/saassurvey.
About KeyBanc Capital Markets
KeyBanc Capital
Markets is a leading corporate and investment bank providing
capital markets and advisory solutions to dynamic companies
capitalizing on opportunities in changing industries. Our deep
industry expertise, broad capabilities and unique ideas are
seamlessly delivered to companies across the Consumer & Retail,
Diversified Industries, Healthcare, Industrial, Oil & Gas, Real
Estate, Utilities, Power & Renewables, and Technology
verticals. With over 800 professionals across a national platform,
KeyBanc Capital Markets has more than $50 billion of capital committed to clients and
an award-winning Equity Research team that provides coverage on
over 600 publicly traded companies. Securities products and
services are offered by KeyBanc Capital Markets Inc., member
FINRA/SIPC, and its licensed securities representatives, who may
also be employees of KeyBank N.A. Banking products and services,
are offered by KeyBank N.A.
About KeyCorp
KeyCorp's (NYSE: KEY) roots trace
back nearly 200 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
$188 billion at September 30, 2023. Key provides deposit,
lending, cash management, and investment services to individuals
and businesses in 15 states under the name KeyBank National
Association through a network of approximately 1,000 branches and
approximately 1,300 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 https://www.key.com/.
KeyBank is Member FDIC.
About Sapphire
Sapphire is a global software venture
capital firm with more than $11
billion in AUM(1) and team members across
Austin, London, Menlo
Park and San Francisco. For
over a decade, Sapphire has partnered with visionary management
teams and venture funds to back companies of consequence. Since its
founding, Sapphire has invested in more than
170(2) companies globally resulting in more than 30
Public Listings(3) and 45
acquisitions(4). The firm's investment strategies —
Sapphire Ventures, Sapphire Partners and Sapphire Sport — are
focused on scaling companies and venture funds, elevating them to
become category leaders. Sapphire's Portfolio Growth team of
experienced operators delivers a strategic blend of value-add
services, tools and resources designed to support portfolio company
leaders as they scale.
Disclaimer
(1) AUM represents Sapphire's Regulatory Assets Under Management
as of 12/31/2022 per ADV filed
March 2023 as well as all assets
under management acquired and new commitments made during calendar
year 2023 (2) Figure represents all Sapphire direct growth strategy
investments made from the firm's inception in 2011 to September 2023 (3) Figure represents all Sapphire
direct growth strategy investments that have had an IPO or public
listing from the firm's inception in 2011 to September 2023(4) Figure represents all Sapphire
direct growth strategy investments that have had an exit via
M&A from the firm's inception in 2011 to September 2023
Nothing presented within this article is intended to constitute
investment advice, and under no circumstances should any
information provided herein be used or considered as an offer to
sell or a solicitation of an offer to buy an interest in any
investment fund managed by Sapphire. Information provided reflects
Sapphire's views as of a time, whereby such views are subject to
change at any point and Sapphire shall not be obligated to provide
notice of any change. Due to various risks and uncertainties,
actual events, results or the actual experience may differ
materially from those reflected or contemplated in these
statements. Nothing contained in this article may be relied upon as
a guarantee or assurance as to the future success of any particular
company. Past performance is not indicative of future results.
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SOURCE KeyBanc Capital Markets Inc.