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KeyBanc Capital Markets and Sapphire Ventures Private SaaS Company Survey Reveals Pivot to Efficient Growth and Profitability14th annual report suggests that the macroeconomic climate is likely to continue to impact ARR growth and profitability in 2024 SAN FRANCISCO and MENLO PARK, Calif., Dec. 18, 2023 /PRNewswire/ -- KeyBanc Capital Markets (KBCM), the corporate and investment banking unit of KeyCorp in partnership with Sapphire Ventures, a global software venture capital firm backing companies of consequence, released results from KBCM's Technology Group's 14th annual Private SaaS Company Survey, the benchmarking report by which the SaaS industry measures financial and operating performance. This year's survey revealed trends of decelerated growth and a transition towards profitability in 2023, a resounding theme throughout the report's findings. In addition, the report uncovered that sales and marketing could potentially see some lagging effects although, in the near term, there is an overall feeling of optimism in more productive go-to-market (GTM) teams after industry wide-adjustments. Key trends identified in this year's report include:
"Primarily driven by the availability of capital and a positive economic outlook, companies invested to pursue aggressive growth targets in 2022. However, as the market became more challenging and growth did not play out as expected, many companies were forced to scale back operations and shift their focus from growth to profitability," says Scott Peterson, managing director, Software Investment Banking at KeyBanc Capital Markets. "Despite this, we continue to see strong long-term prospects for the sector, due to factors such as a continued move to the cloud and increased adoption of artificial intelligence." "Sapphire Ventures is pleased to partner with KeyBanc Capital Markets on this invaluable report and reference point for the start-up SaaS industry. As 2023 comes to a close, the findings are no surprise as we saw B2B software companies adjust to a new normal amidst difficult economic times," said Steve Abbott, partner, Sapphire Ventures. "Over the past year, we saw the cost of capital rise significantly, which resulted in the top companies focusing ore than ever on achieving efficient growth metrics. We see this trend continuing into 2024." Among private SaaS companies, only 15 percent of this year's respondents operated at or above The Rule of 40, a key benchmark of "best-in-class" SaaS company performance, which is calculated by adding a company's growth rate and profitability margin. Last year, more than one third of respondents noted that they operated at or above The Rule of 40 in 2021, an indication that companies were less efficient with their spending and/or did not achieve their growth targets in 2022. 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 2022 ARR of $25.5 million in several sectors including infrastructure management, fintech, cybersecurity, communications, data infrastructure, vertical market application and horizontal application. To view the full survey results, methodology and to see a deeper analysis of the findings, visit us at http://www.key.com/saassurvey. About KeyBanc Capital Markets About KeyCorp About Sapphire Disclaimer (1) AUM represents Sapphire's Regulatory Assets Under Management as of 12/31/2022 per ADV filed March 2023 as well as all assets under management acquired and new commitments made during calendar year 2023 (2) Figure represents all Sapphire direct growth strategy investments made from the firm's inception in 2011 to September 2023 (3) Figure represents all Sapphire direct growth strategy investments that have had an IPO or public listing from the firm's inception in 2011 to September 2023(4) Figure represents all Sapphire direct growth strategy investments that have had an exit via M&A from the firm's inception in 2011 to September 2023 Nothing presented within this article is intended to constitute investment advice, and under no circumstances should any information provided herein be used or considered as an offer to sell or a solicitation of an offer to buy an interest in any investment fund managed by Sapphire. Information provided reflects Sapphire's views as of a time, whereby such views are subject to change at any point and Sapphire shall not be obligated to provide notice of any change. Due to various risks and uncertainties, actual events, results or the actual experience may differ materially from those reflected or contemplated in these statements. Nothing contained in this article may be relied upon as a guarantee or assurance as to the future success of any particular company. Past performance is not indicative of future results.
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