Customer Concentration is Definitely a Risk Factor. But It’s Probably OK.

Q:  SaaS multiples are through the roof. What is the max acceptable share of revenue from a single largest customer so that the usual terms still apply (obviously a SaaS that only has 1-2 huge clients is not exitable)?

Most VCs (and acquirers) will be wary of high customer concentration for sure.

But …

  • It was a risk when Twilio IPO’d and lost Uber, its largest customer. Twilio has done just fine and is worth an incredible $60B+ today. More here.
  • Veeva IPO’d with less than 200 big customers and is worth $40B today.  More here.
  • It was a risk for Palantir for years and still is. Even today, 66% of its revenue comes from just 20 customers.  And it’s worth $44B today.  More here.

As you can see here, even with 200,000+ customers, Twilio still has 14% of its revenue from its Top 10 customers:

Customer concentration entails risks, but as long as you have a decent cohort of them, many investors will be OK with it. Many (not all) will assume if you have 10 happy big customers, you can get 10 more.

What is an issue in many cases is a single-digit number of customers. That can seem too early and too risky to many investors.

Published on March 22, 2021

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