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Survey Finds Hyper Growth Still Uncommon For SaaS Companies At Scale

New survey highlights key SaaS performance and success metrics, including capital efficiency

Company Release - 10/17/2017 10:00 AM ET

SAN FRANCISCO, Oct. 17, 2017 /PRNewswire/ -- KeyBanc Capital Markets Inc. (KBCM), the corporate and investment banking unit of KeyCorp (NYSE: KEY), today released results from its Technology Group's 8th annual Private SaaS Company Survey (formerly known as the Pacific Crest Securities Private SaaS Company Survey), the yardstick by which the cloud software industry measures financial and operating performance. While findings show very strong growth for private Software-as-a-Service (SaaS) companies as a whole (47 percent median growth rate), many of the companies are still early in their development. The median growth rate drops to 25 percent for companies with over $25 million in revenues and just one-in-five of those companies with over $25 million in revenues experienced growth rates over 50 percent. 

Responses for the survey, the longest running and most extensive of its kind, were solicited from senior executives at nearly 400 private SaaS companies. For the first time, this year's survey also provided detail on just how much investment capital it takes to build SaaS businesses. Companies in the survey group consumed a median of $1.5 million in capital for each $1 million of annual recurring revenue (ARR).

"SaaS continues to be among the most exciting and fastest growing markets in technology, which these survey results bear out. What's underappreciated, though, is just how hard it is to sustain massive growth at scale," said David Spitz, managing director of KBCM's Technology Group and primary author of the survey. "SaaS companies and their investors continue to push their businesses to perform at the highest levels. Our analysis provides these companies the tools and data needed to assess where they stand, and what they can do to improve their operations, unit level economics and capital efficiency."

Among key performance metrics from the 2017 survey:

  • Application delivery – The large majority of companies (76 percent) now use third parties to deliver their SaaS applications, with only 24 percent delivering their applications on self-managed servers. Amazon Web Services is by far the most utilized third-party service provider, with 70 percent market share.
  • The Rule of 40% – One-in-four private SaaS companies at scale surveyed are operating at or above "The Rule of 40%," a much discussed key measure of best-in-class SaaS company performance calculated by adding a company's revenue growth rate and profitability margin. For companies with more than $15 million in ARR, those that meet or exceed The Rule of 40% have markedly lower churn (6.3 percent vs. 8.3 percent), Customer Acquisition Cost (CAC) Ratio for new customers ($1.11 vs. $1.29) and a better capital efficiency ratio (0.94 vs. 1.64) compared to their counterparts.
  • CAC Ratio – Companies of more than $5 million in ARR spent a median of $1.15 to acquire each dollar of new ARR from a new customer. By comparison, companies only spent half that amount ($0.57) to acquire each new dollar of upsell ARR, up from $0.27 last year.

David Skok, investor at Matrix Partners, author of the SaaS-focused blog and active supporter of the survey for the past six years, added: "SaaS companies are unique in that most require high upfront sales and marketing costs and delayed revenue collection. This leads to a cash flow trough where they are actually losing money in the early years. Because of this, it's extremely important to be able to benchmark and track core metrics so they know, even while in the cash flow trough, whether the business will work in the long term. The survey enables the kind of deep data and insights that SaaS companies need in order to benchmark and track their performance over time."

The Private SaaS Company Survey establishes operational and financial benchmarking data for executives and investors in SaaS companies, from go-to-market selling strategies, customer retention rates and customer acquisition costs, to operational management, growth and margin structures. Full survey results are available online.

About the KBCM Technology Group Private SaaS Company Survey
The KBCM Technology Group Private SaaS Company Survey was first developed by Pacific Crest Securities in 2011 to provide benchmark performance metrics for SaaS companies. Pacific Crest was acquired by KBCM in 2014 and rebranded as KBCM Technology Group, combining the technology specialist approach of Pacific Crest with the expanded capabilities and broader resources of KBCM and its parent, KeyCorp (NYSE: KEY). Approximately 400 senior executives from SaaS companies around the world participated anonymously and confidentially in the 2017 survey. Responses were submitted online between June and July 2017. KBCM cannot verify accuracy of responses. Observations and commentary contained herein relate solely to the survey results and cannot necessarily be applied elsewhere. For more information about the KBCM Technology Group, please visit us online.

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 $30 billion of capital committed to clients and an award-winning Equity Research team that provides coverage on over 700 publicly-traded companies. KeyBanc Capital Markets is a trade name under which corporate and investment banking products and services of KeyCorp and its subsidiaries, KeyBanc Capital Markets Inc., Member NYSE/FINRA/SIPC ("KBCMI"), and KeyBank National Association ("KeyBank N.A."), are marketed. Securities products and services are offered by KeyBanc Capital Markets Inc. 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 roots trace back 190 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 $135.8 billion at June 30, 2017. Key provides deposit, lending, cash management, insurance, and investment services to individuals and businesses in 15 states under the name KeyBank National Association through a network of more than 1,200 branches and more than 1,500 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 KeyBank is Member FDIC.

KeyBank (PRNewsFoto/KeyCorp)


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