M&A, IPOs & Exits

$3 Billion Is the New $1 Billion in SaaS

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Jason Lemkin

A funny thing happened as part of the last 2 years of this epic bull run:

$3 Billion became the New $1 Billion In SaaS.  So maybe it’s time to change the definition of a SaaS Unicorn.

Let’s look at Bessemer’s Cloud Index at the last batch of SaaS and SaaS-ish companies to IPO:  Box, Hubspot, Mulesoft, RingCentral, Xero, Zendesk, etc:

They are all now $3 Billion+ companies, or close to it.

A lot has changed.  I remember in the Series Seed fundraising deck for EchoSign in 2005 (I know, a long time ago), I put on Slide 0 (the cover slide): “Positioned between eFax ($800m) and Salesforce ($2.6b)” to give investors context.

Back then, even Salesforce wasn’t at $3b at yet.  Today, the three poster childen for “on prem to SaaS” (Salesforce, Workday, ServiceNow) are worth $130b+ collectively, and Salesforce has grown 25x in value since then to $80b.  Talk about power laws!

This doesn’t mean it’s gotten easier.  Multiples of revenue aren’t nearly as high as their 2015 peak.  Box had to grow into its $3b market cap.   It’s at a $500m+ ARR run rate, so that’s still only 6x revenues.  You probably convinced your investors to pay more than that.  Multiples are not that impressive in SaaS today, and arguably too low to support the massive amount of venture investment in the past few years.

But as the cloud and SaaS in particular have grown faster than almost any of us expected 10 years ago, the odds of building not just a unicorn ($1b) but a $3b+ company have gone up dramatically.  There are 24 of them now that are public, maybe 27 or more if we add in amazing companies that are almost there like Okta and New Relic, and more if we add in companies like AppDynamics that were acquired for more than $3 billion.  We’ll be at 30 soon enough.  30 public cloud companies worth $3b or more.  Up from 0 in 2005.

It’s as hard as ever to compete.  There are more vendors in every category.  The bar keeps going up.

But the flip side is the markets are so much larger.  So if you can really hit it, if you can really win in a market.  You can get bigger than ever.

You can aim for $3 billion in fact.  Not just a measly unicorn.

Published on November 2, 2017
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