US SaaS companies need to take note of the growing number of world class SaaS companies based outside the US because the international landscape is shifting rapidly. Increased funding activity in Canada, Europe and Asia/Pac is introducing more non-US competition in the SaaS marketplace. More and better funded SaaS companies worldwide can be a challenge but also an opportunity for US firms. Think about it as you review your resource allocations dedicated to international markets in your 2020 plans.
2019 Investment in non-US based SaaS companies rose dramatically, granted off a smaller base. In Canada alone investment has risen by over 200% from 2018 to $5.13B this year, according to Ottawa-based accelerator L-Spark. According to venture firm Accel’s 2019 Euroscape, European investment grew from $2B in 2016 to over $5B in 2019, still only a quarter of US SaaS investment.
European, Canadian and Australasia are seeing the same pattern as the US of larger and larger investment rounds, growth funding aimed at creating first and second mover advantage in these non-US based SaaS companies.
L-Spark has released the results of its annual State of Canadian SaaS report, showing that Canadian SaaS companies received a cumulative $5.13 billion in capital investments in 2019, a 213 percent jump from the previous year.
The annual report looks at broad trends and figures, industry highlights, investments, valuations, and acquisitions for the Canada’s software companies. In total, there were 183 companies involved in 206 deals with 298 investors.
The average 2019 investment in a Canadian SaaS company was $43 million, up from $10.3 million in 2018. Canadian companies cited in the report with the highest valuations included Coveo, Hootsuite, Intelex, Element AI, Sigma, and Cority. Investors were equally split between Canadian investors and US investors investing in Canadian companies.
The rise of Europe
According to Accel’s Euroscape report, venture investment in Europe’s SaaS companies is growing quickly. From 2016 to 2019, it rose from $2 billion to $5 billion, growing much faster than in the US, which grew from $15 billion to $20 billion. It now represents one quarter of the US.
European companies have been able to raise rounds as large as their US counterparts, and UiPath and Veeam top the list with $568 million and $500 million in total investment respectively.
There are now seven European-founded public SaaS companies, with three of them above $5 billion market cap (Zendesk, Elastic and Wix) and 16 unicorns.
Accel’s analysis says that it now takes the same amount of time for European venture-backed SaaS companies to grow from $1M ARR to $10M ARR and from $10M ARR to $50M ARR as US companies.
Not to be ignored, Australia and New Zealand have been producing world class SaaS companies as well, including unicorns Canva and Atlassian. New Zealand domiciled public SaaS company, Xero, is listed on the Australian Stock Exchange. Another wave of growth SaaS companies is coming along as well and receiving significant investment in Australia, like Campaign Monitor, Culture Amp, Data Republic, Deputy, Employment Hero, MYOB, ROKT, Safety Culture, and many more.
Competition and Opportunity for US SaaS Companies
International expansion for most US SaaS companies has come later and slowly. In the OPEXEngine benchmarking ten years ago, private SaaS companies earned 9.5% of revenues from outside the US, and public SaaS companies received 15% of revenues from non-US customers.
In 2018, the OPEXEngine benchmarking showed private SaaS companies only increasing revenues from non-US customers to 11% of revenue, and public SaaS companies increasing to 26%. US markets have been the primary growth space for US SaaS companies, but we expect to see that evolve to include an earlier focus on expansion into international markets.
In the vein of “a rising tide lifts all boats,” more SaaS companies and activity outside the US will create more opportunity for US SaaS companies. The more competition in the market helps develop the market. It also expands the opportunity for partnering and building out SaaS ecosystems which have been proven an effective growth model for SaaS companies.
Here’s three things you should be considering as you build out your 2020 plan:
- If you are building international sales, you can outsource much of your operational infrastructure at a much lower cost and risk basis than you could 10 or 20 years ago.
- Most US SaaS companies sell internationally thru sales partners, to reduce cost and risk. International markets still tend to expect local relationships and expertise in the buying process, although that may evolve quickly as well.
- Don’t just explore sales partners – look at building out tech and ecosystem partnerships with other SaaS companies that have access to new markets or international customers in ways that you don’t and don’t just partner with US-based tech companies.