SAN FRANCISCO, Oct. 24, 2018 /PRNewswire/ -- KeyBanc
Capital Markets Inc. (KBCM), the corporate and investment banking
unit of KeyCorp (NYSE: KEY), today released results from its
Technology Group's 9th annual Private SaaS Company
Survey (formerly known as the Pacific Crest Securities Private SaaS
Company Survey), the yardstick by which the cloud software industry
measures financial and operating performance of its best-in-class
private companies.
This year's edition of the survey reveals continued strong
growth for Software-as-as-Service (SaaS) applications last year,
with a 53 percent median year-on-year growth in Annual Recurring
Revenue (ARR). While most of these companies do not yet generate
free cash flow, the results show that they are becoming
increasingly sophisticated at managing their operations to achieve
strong unit level economics and reliable services.
Amazon Web Services (AWS) continues its dominance as the primary
back-end computing choice for privately held SaaS companies, with
64 percent of the survey group choosing AWS. This percentage has
steadily grown each year and has nearly doubled since 2014 (35
percent). Meanwhile, SaaS companies have decreased their reliance
on self-managed servers, from 52 percent four years ago to 13
percent in 2018. While other public cloud providers such as
Microsoft Azure and Google Cloud have also increased in popularity,
AWS has continued to consolidate its substantial lead, with 74
percent market share based on data from the survey.
"SaaS and cloud computing remain among the most vibrant sectors
of the economy, as virtually every industry is being transformed by
innovations enabled by software," said David Spitz, managing director of KBCM's
Technology Group and primary author of the survey. "Nonetheless,
there are sharp differences in the financial and operating
performance among the thousands of SaaS companies vying for
customers and investor dollars. Our analysis provides the tools and
data needed to assess where they stand, and what they can do to
improve their operations, economics and capital efficiency."
Responses for the survey, the longest running and most extensive
of its kind, were solicited from senior executives at nearly 400
private SaaS companies. Other key highlights from the 2018 survey
include:
- Customer Acquisition Cost (CAC) – The median CAC ratio
among respondents, which measures the cost to acquire $1 of new annual subscription, is $1.11 for all new bookings; however, it is
substantially higher for new customer bookings ($1.32) than for upsells ($0.72) or expansions ($0.38). Larger companies generally do a much
better job taking advantage of this cost differential through "land
and expand" strategies.
- Sales and Marketing Efficiency at Scale – While, as
expected, companies spending more on sales and marketing tend to
grow faster, survey results clearly indicate diminishing returns,
particularly above a ratio of 80 percent sales and marketing spend
to revenue. Nonetheless, a few elite companies in the survey group
defy the trend and effectively invest above these levels to achieve
hypergrowth.
- Churn and Net Retention – The median gross dollar churn,
which measures business lost from customers during the year (before
factoring in expansion from the base) is just over 13 percent. But
this is offset with expansions and upsells, and the median net
dollar retention is 102 percent, or negative 2 percent churn. Elite
companies surveyed registered net dollar retention over 120
percent.
- Capital Consumption – Capital efficiency of SaaS
companies varies significantly. The median company has consumed
$1.5 million for each $1 million of committed ARR. The most efficient
companies, however, turn cash flow positive and are able to bring
their cumulative capital consumption ratios below 1.0x.
David Skok, investor at Matrix
Partners, author of the SaaS-focused blog forentrepreneurs.com and
active supporter of the survey for the past seven years, added:
"It's impressive to see how SaaS businesses have grown up and are
now becoming some of the most important companies driving our
economy. Anyone running a SaaS business knows that there are a
handful of metrics that drive dramatic changes in the performance
of the business. It's extremely helpful to have benchmarks for
these to know where you stand. I continue to hear from
entrepreneurs how highly they value the data they get from this
survey, and how it helps them to make informed decisions in their
own businesses."
The KBCM Private SaaS Company Survey establishes operational and
financial benchmarking data for executives and investors in SaaS
companies, from go-to-market selling strategies, customer retention
rates and customer acquisition costs, to operational management,
growth and margin structures. Full survey results are available
online.
About the KBCM Technology Group Private SaaS Company
Survey
The KBCM Technology Group Private SaaS Company Survey
was first developed by Pacific Crest Securities in 2011 to provide
benchmark performance metrics for SaaS companies. Pacific Crest was
acquired by KBCM in 2014 and rebranded as KBCM Technology Group,
combining the technology specialist approach of Pacific Crest with
the expanded capabilities and broader resources of KBCM and its
parent, KeyCorp (NYSE: KEY). Approximately 400 senior executives
from SaaS companies around the world participated anonymously and
confidentially in the 2018 survey. Responses were submitted online
between June and July 2018. KBCM
cannot verify accuracy of responses. Observations and commentary
contained herein relate solely to the survey results and cannot
necessarily be applied elsewhere. For more information about the
KBCM Technology Group, please visit us online.
About KeyBanc Capital Markets
KeyBanc Capital Markets
is a leading corporate and investment bank providing capital
markets and advisory solutions to dynamic companies capitalizing on
opportunities in changing industries. Our deep industry expertise,
broad capabilities and unique ideas are seamlessly delivered to
companies across the Consumer & Retail, Diversified Industries,
Healthcare, Industrial, Oil & Gas, Real Estate, Utilities,
Power & Renewables, and Technology verticals. With over 800
professionals across a national platform, KeyBanc Capital Markets
has more than $30 billion of capital
committed to clients and an award-winning Equity Research team that
provides coverage on over 700 publicly-traded companies. KeyBanc
Capital Markets is a trade name under which corporate and
investment banking products and services of KeyCorp and its
subsidiaries, KeyBanc Capital Markets Inc., Member FINRA/SIPC
("KBCMI"), and KeyBank National Association ("KeyBank N.A."), are
marketed. Securities products and services are offered by KeyBanc
Capital Markets Inc. and its licensed securities representatives,
who may also be employees of KeyBank N.A. Banking products and
services are offered by KeyBank N.A.
About KeyCorp
KeyCorp's roots trace back 190 years to
Albany, New York. Headquartered in
Cleveland, Ohio, Key is one of the
nation's largest bank-based financial services companies, with
assets of approximately $138.8 billion at September 30,
2018. Key provides deposit, lending, cash management, and
investment services to individuals and businesses in 15 states
under the name KeyBank National Association through a network of
over 1,100 branches and more than 1,500 ATMs. Key also provides a
broad range of sophisticated corporate and investment banking
products, such as merger and acquisition advice, public and private
debt and equity, syndications and derivatives to middle market
companies in selected industries throughout the United States under the KeyBanc Capital
Markets trade name. For more information, visit
https://www.key.com/. KeyBank is Member FDIC.
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