Helping to raise Series A investment for tech companies.
The most important metric we track in the survey is revenue growth. This is because your company’s growth rate relative to that of other SaaS businesses of similar size is the single largest determinant of your company’s valuation multiple.
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www.saas-capital.com
GROWTH
PAGE 1
BENCHMARKING PRIVATE SAAS COMPANY GROWTH RATES
It's not difficult to benchmark your SaaS business's performance against that of public SaaS companies, but it's also not that
helpful. The sheer scale of the public companies makes for an apples-to-oranges comparison that does not reveal credible
performance accomplishments or gaps. To solve for this information gap, SaaS Capital has been surveying private SaaS
businesses since 2012, and our most recent survey, covering 2017 performance, had over 950 company participants. The
survey covers a wide range of topics including churn, CAC, unit economics, spending levels, etc., and we will report on all
those metrics throughout the year.
The most important metric we track in the survey is revenue growth. This is because your company's growth rate relative to that of
other SaaS businesses of similar size is the single largest determinant of your company's valuation multiple.
Growth Rate by Company Size
How fast your SaaS business is growing is only relevant when
compared to a group of similarly sized businesses. A growth rate
of 80% for a $3 million SaaS business is very good, while growth
of 80% for a $20 million SaaS business is amazing. The smaller
company might be worth 5 times revenue, while the latter might
be worth closer to 10 times revenue.
A few takeaways from the data:
First and foremost: overall growth in the SaaS industry
is pervasive. Out of the nearly 950 respondents, only
four companies reported shrinking in 2017, and only 41
companies reported zero growth. Of the remaining ~900
companies, 90% reported annual revenue growth of
greater than 10%.
Second, growth rates decline as revenue levels increase.
This is simply due to math (a larger denominator) and
boards and management teams need to use the data
above to set informed growth plans and not simply base
assumptions on prior year performance.
How Long Does it Take?
With such prevalent growth, we were surprised to see how
long it takes the typical SaaS company to scale. The median
age of companies with $1 million in ARR is 6 years, with those
raising venture capital reaching the milestone in 4 years, and
bootstrapped companies getting there in 7 years.
RESEARCH BRIEF 16: GROWTH RATES
-
10
20
30
40
50
60
< $1
million
$1-$5
million
$5-$10
million
$10-$20
million
$20-$50
million
$50+
million
Growth RateAnnual Revenue
Median Growth 2018
SaaS
Capital
"The median age of companies
with $1 million in ARR is 6
years."
www.saas-capital.com
GROWTH
PAGE 2
While there is some noise in the data below
because the revenue bands are so tight, this
chart is useful for comparing your company's
progress with 950 other SaaS companies.
The chart can also help objectively assess
the benefits of raising equity from a venture
capital firm at various points in the company's
life cycle.
It's also interesting that no venture-backed
companies, besides the very large ones ($75+
million), are older than about 10 years. This
is likely due to VC fund horizons with the
data suggesting 10 to 12 years is the implicit
window that entrepreneurs, boards, and
investors give themselves to get as big as
they can before an exit.
Other Data and Observations
For the following points, we look only at
companies with ARR greater than $1 million, and generally use the median growth rate, as opposed to average. We will
likely dive deeper into all of the following points in future publications.
Bootstrapped companies were growing at 28% per year, whereas companies that had raised angel or venture capital
financing were growing at 43% and 50% respectively. However, it's not clear which is the cause and which the result,
as investors are looking to back companies that already show signs of being strong performers.
Average contract value (ACV) does not appear to impact growth rate. Median growth rates for companies across all
ACVs range between 35 and 40%. We have seen in a previous analysis, however, that increasing prices over time is an
important driver of growth.
SaaS companies targeting a horizontal market are growing faster than companies attacking a vertical industry: 40%
growth versus 35% respectively. This relationship is generally true across companies of all sizes, but it is particularly
strong among larger companies. Horizontal SaaS companies
with about $10 million in annual recurring revenue (ARR) and
up grew 40% in 2017, while vertical-focused companies of the
same size grew by 30%. This makes sense, as vertical-focused
companies, depending on the size of their vertical, may
eventually run out of market to sell to.
At nearly all revenue levels, SaaS companies that bill annually
in advance grow faster than their peers that bill monthly. The
median growth rate for companies billing annually upfront
was 40% versus 36% for those billing month-to-month. Cause
and effect are difficult to determine, but there is no doubt
the annual billing companies enjoy a meaningful cash flow
advantage over monthly billers during periods of high growth.
The correlation between higher retention and higher growth
rate was weaker this year as there were a number of younger companies with gross revenue retention below 70% and
growth rates well above 100%. The correlation between growth and retention increases as companies mature and
more of next year's revenue comes from the current year. Companies can outrun churn when they are little, but it
eventually catches up. More on churn benchmarks in future Research Briefs.
-
5
10
15
20
25
Median Company Age in YearsAnnual Revenue
Bootstrapped Companies
VC-backed Companies
All companies
SaaS
Capital
"Horizontal SaaS companies
with $10 million in ARR and up
grew 40% in 2017, while their
vertical-focused peers grew by
30%."
www.saas-capital.com
GROWTH
PAGE 3
ABOUT SAAS CAPITAL
SaaS Capital is the leading provider of long-term Committed Credit Facilities to SaaS
companies. Focusing exclusively on the SaaS business model, SaaS Capital delivers
faster decisions, more capital, and longer commitments. SaaS businesses have
used SaaS Capital's Committed Credit Facilities, instead of equity, to finance growth
and create hundreds of millions of dollars in enterprise value without sacrificing
significant ownership or control. Also, through its partnership with DH Capital, a
boutique investment banking advisory firm, SaaS Capital can assist with M&A and
capital raising services. SaaS Capital has offices in Cincinnati, New York, and Seattle.
Visit www.saas-capital.com to learn more.
810 SEVENTH AVENUE, SUITE 2005 | NEW YORK, NY 10019
1225 HAYWARD AVENUE | CINCINNATI, OH 45208
7900 E GREENLAKE DRIVE NE, SUITE 206 | SEATTLE, WA 98103
IWWW.SAAS-CAPITAL.COM
TODD GARDNER | FOUNDER AND MANAGING DIRECTOR | TGARDNER@SAAS-CAPITAL.COM | 513-368-4814
ROB BELCHER | MANAGING DIRECTOR | RBELCHER@SAAS-CAPITAL.COM | 303-870-9529
GROWTH
PAGE 1
BENCHMARKING PRIVATE SAAS COMPANY GROWTH RATES
It's not difficult to benchmark your SaaS business's performance against that of public SaaS companies, but it's also not that
helpful. The sheer scale of the public companies makes for an apples-to-oranges comparison that does not reveal credible
performance accomplishments or gaps. To solve for this information gap, SaaS Capital has been surveying private SaaS
businesses since 2012, and our most recent survey, covering 2017 performance, had over 950 company participants. The
survey covers a wide range of topics including churn, CAC, unit economics, spending levels, etc., and we will report on all
those metrics throughout the year.
The most important metric we track in the survey is revenue growth. This is because your company's growth rate relative to that of
other SaaS businesses of similar size is the single largest determinant of your company's valuation multiple.
Growth Rate by Company Size
How fast your SaaS business is growing is only relevant when
compared to a group of similarly sized businesses. A growth rate
of 80% for a $3 million SaaS business is very good, while growth
of 80% for a $20 million SaaS business is amazing. The smaller
company might be worth 5 times revenue, while the latter might
be worth closer to 10 times revenue.
A few takeaways from the data:
First and foremost: overall growth in the SaaS industry
is pervasive. Out of the nearly 950 respondents, only
four companies reported shrinking in 2017, and only 41
companies reported zero growth. Of the remaining ~900
companies, 90% reported annual revenue growth of
greater than 10%.
Second, growth rates decline as revenue levels increase.
This is simply due to math (a larger denominator) and
boards and management teams need to use the data
above to set informed growth plans and not simply base
assumptions on prior year performance.
How Long Does it Take?
With such prevalent growth, we were surprised to see how
long it takes the typical SaaS company to scale. The median
age of companies with $1 million in ARR is 6 years, with those
raising venture capital reaching the milestone in 4 years, and
bootstrapped companies getting there in 7 years.
RESEARCH BRIEF 16: GROWTH RATES
-
10
20
30
40
50
60
< $1
million
$1-$5
million
$5-$10
million
$10-$20
million
$20-$50
million
$50+
million
Growth RateAnnual Revenue
Median Growth 2018
SaaS
Capital
"The median age of companies
with $1 million in ARR is 6
years."
www.saas-capital.com
GROWTH
PAGE 2
While there is some noise in the data below
because the revenue bands are so tight, this
chart is useful for comparing your company's
progress with 950 other SaaS companies.
The chart can also help objectively assess
the benefits of raising equity from a venture
capital firm at various points in the company's
life cycle.
It's also interesting that no venture-backed
companies, besides the very large ones ($75+
million), are older than about 10 years. This
is likely due to VC fund horizons with the
data suggesting 10 to 12 years is the implicit
window that entrepreneurs, boards, and
investors give themselves to get as big as
they can before an exit.
Other Data and Observations
For the following points, we look only at
companies with ARR greater than $1 million, and generally use the median growth rate, as opposed to average. We will
likely dive deeper into all of the following points in future publications.
Bootstrapped companies were growing at 28% per year, whereas companies that had raised angel or venture capital
financing were growing at 43% and 50% respectively. However, it's not clear which is the cause and which the result,
as investors are looking to back companies that already show signs of being strong performers.
Average contract value (ACV) does not appear to impact growth rate. Median growth rates for companies across all
ACVs range between 35 and 40%. We have seen in a previous analysis, however, that increasing prices over time is an
important driver of growth.
SaaS companies targeting a horizontal market are growing faster than companies attacking a vertical industry: 40%
growth versus 35% respectively. This relationship is generally true across companies of all sizes, but it is particularly
strong among larger companies. Horizontal SaaS companies
with about $10 million in annual recurring revenue (ARR) and
up grew 40% in 2017, while vertical-focused companies of the
same size grew by 30%. This makes sense, as vertical-focused
companies, depending on the size of their vertical, may
eventually run out of market to sell to.
At nearly all revenue levels, SaaS companies that bill annually
in advance grow faster than their peers that bill monthly. The
median growth rate for companies billing annually upfront
was 40% versus 36% for those billing month-to-month. Cause
and effect are difficult to determine, but there is no doubt
the annual billing companies enjoy a meaningful cash flow
advantage over monthly billers during periods of high growth.
The correlation between higher retention and higher growth
rate was weaker this year as there were a number of younger companies with gross revenue retention below 70% and
growth rates well above 100%. The correlation between growth and retention increases as companies mature and
more of next year's revenue comes from the current year. Companies can outrun churn when they are little, but it
eventually catches up. More on churn benchmarks in future Research Briefs.
-
5
10
15
20
25
Median Company Age in YearsAnnual Revenue
Bootstrapped Companies
VC-backed Companies
All companies
SaaS
Capital
"Horizontal SaaS companies
with $10 million in ARR and up
grew 40% in 2017, while their
vertical-focused peers grew by
30%."
www.saas-capital.com
GROWTH
PAGE 3
ABOUT SAAS CAPITAL
SaaS Capital is the leading provider of long-term Committed Credit Facilities to SaaS
companies. Focusing exclusively on the SaaS business model, SaaS Capital delivers
faster decisions, more capital, and longer commitments. SaaS businesses have
used SaaS Capital's Committed Credit Facilities, instead of equity, to finance growth
and create hundreds of millions of dollars in enterprise value without sacrificing
significant ownership or control. Also, through its partnership with DH Capital, a
boutique investment banking advisory firm, SaaS Capital can assist with M&A and
capital raising services. SaaS Capital has offices in Cincinnati, New York, and Seattle.
Visit www.saas-capital.com to learn more.
810 SEVENTH AVENUE, SUITE 2005 | NEW YORK, NY 10019
1225 HAYWARD AVENUE | CINCINNATI, OH 45208
7900 E GREENLAKE DRIVE NE, SUITE 206 | SEATTLE, WA 98103
IWWW.SAAS-CAPITAL.COM
TODD GARDNER | FOUNDER AND MANAGING DIRECTOR | TGARDNER@SAAS-CAPITAL.COM | 513-368-4814
ROB BELCHER | MANAGING DIRECTOR | RBELCHER@SAAS-CAPITAL.COM | 303-870-9529