It seems every day there’s not just a new SaaS unicorn, but 2 or 3! How can this be? How can there now be 100s of SaaS Unicorns (startups worth $1B or more) … vs just a handful 5-6 years ago?
The technical reasons are two-fold:
- SaaS markets have exploded, so there are more and more vendors that get to $100m+ ARR. And hence a unicorn or even more, assuming 30%+ growth rate at $100m ARR.
- SaaS “multiples” are at an all-time high, so a fast-growing SaaS company can be worth $1B earlier than a few years ago.
The combo makes for more SaaS unicorns just by the numbers. More SaaS companies growing fast enough to get to $100m ARR x stock market valuing them 3x higher than before = lots-of-‘corns.
But there’s an even simple answer:
The average public SaaS company is now worth a stunning $27B. And even the newest IPOs, and the up-and-comers … the ones with a sub-$30B market cap, are still worth $10B on average:
So a large VC firm can still make really good money — 10x — by investing in any SaaS / Cloud winner at a $1B valuation. And still make 10x on a big, late-stage check.
And 10x is even repeatedly possible at a $3B valuation, if you become an Okta, a Coupa, a Datadog, a Zscaler, a Veeva, a Cloudstrike, a RingCentral, etc. All are worth ~$30B or more.
And so also you see a lot of deals now at $3B valuations or so
Why? You can still do 3x if it IPO’s at $10B. More if it’s an Affirm, Okta, etc.
3x is where the math works for late-stage investing
— Jason ✨BeKind✨ Lemkin ⚫️ (@jasonlk) January 14, 2021
With so many SaaS leaders worth $10B on average, and $27B for the top ones, that means late-stage VC are making 100s of bets at $1B or more.
The math just supports it.
More on those Cloud leaders’ market caps here, and various averages here: