15th annual report suggests AI and
macro-economic optimism as drivers of growth in 2025
SAN
FRANCISCO and MENLO PARK,
Calif., Oct. 23, 2024 /PRNewswire/ -- KeyBanc
Capital Markets (KBCM), the corporate and investment banking unit
of KeyCorp (NYSE:KEY), in partnership with Sapphire Ventures, a
global software venture capital firm backing companies of
consequence, released results from its 15th annual
Private SaaS Company Survey, the benchmarking report by which the
SaaS industry measures financial and operating performance.
This year's survey included more than 100 private software as a
service (SaaS) companies revealing a continued focus on efficient
execution and profitability — a resounding theme throughout the
report. The report also suggests that private SaaS companies have
an opportunity to shift their focus from dealing with uncertainty
to pursuing future growth, with artificial intelligence (AI)-first
SaaS companies in particular expecting to experience growth
acceleration in the next 12 months.
TOP TRENDS AND INSIGHTS:
Annual Recurring Revenue (ARR) growth and retention remain
consistent.
- ARR growth is expected to slightly decelerate year-over-year to
~19% in 2024; however, this is still nearly twice as fast as public
software companies, which have an estimated median growth rate of
~11% in 2024.
- Both gross retention and net retention have remained, and are
expected to remain, relatively consistent at ~90% and ~101%,
respectively.
Anticipated increase in sales quotas and attainment rates for
Go-To-Market (GTM) teams as companies adopt AI and learn how to
further improve GTM efficiency.
- Sales team quotas increased by more than 10% in 2023 and have
remained elevated in 2024 with quota attainment expectations also
having expanded from ~70% to ~75% this year, two positive signs
that highlight how private SaaS companies are able to navigate
today's changing market.
- Recent headcount additions to GTM teams indicate optimism
moving forward as companies anticipate and prepare for a rebound in
2025.
Companies remain focused on successful execution and
improving profitability.
- Major profitability metrics saw a slight improvement in 2023;
however, there is an even more pronounced improvement in 2024 as
companies continue to focus on operating efficiency and improving
their EBITDA margins instead of aggressively pursuing top-line
growth.
- Continued budget cuts and a more conservative approach to
expense management are anticipated, especially for larger-sized
companies with >$50
million ARR.
Both public and private markets are showing signs of
improvement--primarily driven by recent AI developments and a more
optimistic view of the macro environment
- Public market software valuations are returning to
near-normalized levels at ~5-6x next twelve months (NTM) revenue,
compared to the all-time highs of ~17x in 2021.
- Private market financing activity and multiples are beginning
to show strength, with high growth companies growing more than 50%
commanding super premium multiples of ~14x ARR.
"Primarily driven by the availability of capital and a positive
economic outlook, companies invested to pursue aggressive growth
targets in 2021-2022. However, many companies scaled back
operations and shifted their focus from growth to profitability as
we entered 2023," says Scott Peterson, Managing Director,
Software Investment Banking at KeyBanc Capital Markets. "Despite
this trend continuing into 2024, we see strong long-term prospects
for the sector, due to factors such as the continued transition to
the cloud and increased adoption of artificial intelligence."
"Over the past year, we saw companies become even more efficient
as they learned to do more with less and refined their ideal target
customer profiles," said Steve
Abbott, Partner at Sapphire Ventures. "Moving forward, we
see private company SaaS growth inflecting higher as the macro
economy improves and as companies take advantage of AI
tailwinds."
Rule of 40 benchmarking, a "best-in-class" SaaS company
performance calculated by adding a company's growth rate and
profitability margin, is showing signs of improvement amongst
private SaaS companies. While none of our surveyed companies are
expected to achieve or exceed the Rule of 40 this year, many of
them are getting closer to it, primarily due to EBITDA margin
improvements.
The KBCM and Sapphire Ventures Private SaaS Company Survey
provides credible operational and financial benchmarking data for
executives and investors in SaaS companies of all sizes. This
includes everything from GTM selling strategies, historical and
projected growth, and retention rates, to operational management
and margin structures, as well as proprietary data on valuation and
exit expectations. This year's survey polled senior executives at
more than 100 privately held global SaaS companies with a median
2023 ARR of ~$26 million in several sectors including
Infrastructure Management, FinTech, Cybersecurity, Communications,
Vertical Market Applications and Horizontal Applications. To view
the full survey results, methodology and to see a deeper analysis
of the findings, visit us
at http://www.key.com/saassurvey.
The information contained in this report has been obtained from
sources deemed to be reliable but is not represented to be
complete, and it should not be relied upon as such. This report
does not purport to be a complete analysis of any security, issuer,
or industry and is not an offer or a solicitation of an offer to
buy or sell any securities. This report is prepared for general
information purposes only.
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 $50 billion of capital
committed to clients and an award-winning Equity Research team that
provides coverage on nearly 600 publicly traded companies.
Securities products and services are offered by KeyBanc Capital
Markets Inc., member FINRA/SIPC, 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 nearly 200
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 $190
billion at September 30, 2024.
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 approximately
1,000 branches and approximately 1,200 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.
About Sapphire
Sapphire is a global software venture
capital firm with more than $10
billion in AUM(1) and team members across Austin, London, Menlo
Park, and San Francisco.
For over a decade, Sapphire has partnered with visionary management
teams and venture funds to back companies of consequence. Since its
founding, Sapphire has invested in more than 170 companies (2)
globally resulting in more than 30 public listings and 45
acquisitions(3). The firm's investment strategies — Sapphire
Ventures, Sapphire Partners, and Sapphire Sport — are focused on
scaling companies and venture funds, elevating them to become
category leaders. Sapphire's Portfolio Growth team of experienced
operators delivers a strategic blend of value-add services, tools
and resources designed to support portfolio company leaders as they
scale.
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Notes: (1)AUM
(Assets Under Management) represents Sapphire's Regulatory Assets
Under Management as of 12/31/2023 per ADV filed March 2024;
(2)Figures represent all Sapphire direct growth investments made
since the firm's inception in January 2011 through June
2024.(3)Figures represent all Sapphire direct growth
investments that have had an IPO or public listing from the firm's
inception in January 2011 thru June 2024.The specific companies
identified may not be representative of all of Sapphire's
investments and no assumption should be made that the investments
identified were or will be profitable. A complete alphabetical list
of Sapphire's investments made by its direct growth investing funds
is available here.
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SOURCE KeyCorp