It's the end of the year, and it's time for us to make some predictions going into 2019. Here are the top five things we think the SaaS Boards are thinking about going into 2019.
Top Five Things SaaS Boards are Thinking About Going Into 2019
1) Large tech cos are consolidating and driving M&A to offer customers one, integrated platform, competing with pure play SaaS companiesPE firms are enabling the trend toward consolidation. Example: Vista Equity buys Marketo at 64% premium to market, sells 3 years later to Adobe for 15X revenue, Adobe extends their customer offering into Marketing automation.
- Large tech companies will continue to drive trend toward integrated platforms and consolidated offerings
- PE firms will continue to be players and active in 2019
2) Stock markets have been volatile in 2018 but SaaS companies are still highly valuedEV/revenue multiples averaging over 8X despite NASDAQ, S&P and Dow Jones indexes now being negative. The Bessemer Emerging Cloud Index is up almost 36% since January (as of Dec. 18th). By the end of 2018, there are 45 unicorns (Cloud companies with market caps higher than $1B) on the Index.
- Software markets are bigger than previously expected so returns continue to attract investment
3) Rule of 40 Still Applies – Sort ofThe numbers don’t always add up to 40 but there’s something in the balance between revenue growth and profitability. How it shakes out seems to be based on an individual company’s perceived market opportunity and whether their performance indicates a likelihood that they will grow with their market opportunity. Each company has to play to its strengths and present their financial metrics as a compelling story for investors, whether that is revenue growth, an efficient business model, or some combination of the above - or making themselves look like an attractive acquisition opportunity for PE and/or one of the tech giants.
- For category leaders, strong revenue growth rates still valued more than profitability
4) Access to Capital is Expected to be Slightly More Difficult in 2019Venture investment in 2018 reached heights of over $100B invested by some analysis. But the number of deals was smaller, meaning the average amount invested per deal was higher.
- There will be more competition for new VC investment in 2019, VCs will double down on making portfolio companies successful and venture debt will continue to expand as an alternate or bridge to equity capital
5) SaaS Company Operational Efficiency Will Continue to Improve.
Driven by all of the above trends, and access to better data analysis, 2019 will see more companies doubling down on operational efficiency: sales productivity, R&D productivity and overall employee productivity.
SaaS Benchmarking Community
We've just completed our end of the year SaaS Finance Meet-UPs in San Francisco and Boston. SaaS CFOs and FP&A execs shared:
- The planning cycle and best practices to make the budget process go smoothly - early Finance coordination with business partners
- Customer Success - separate from sales
- SalesOps - best practices for data hygiene
- Separating SalesOps (in Sales) and Deal Desk (in Finance)
- Hiring and recruitment trends - targeting 50% from referrals
- Setting up R&D centers outside the saturated areas of San Francisco, Silicon Valley, Boston, Denver, Austin
- Learning and Development (LND) - sits in G&A for many, not allocated out
- How to track channel and partner sales
- How to measure tech debt and what's a good balance?
