Note: SaaSForward is a fortnightly in-depth analysis of global SaaS Trends.
2021 Mega Blockbuster year for SaaS IPO, but we’re just getting started: 00:26
The coming decade will see very different playbooks for SaaS: 1:40
Mailchimp acquisition: Their ValueSaaS journey will inspire many 4:05
If 2020 was a blockbuster year, 2021 is mega-blockbuster
The last two weeks in SaaS have been significant. Of course, there’s the Freshworks IPO news. It is a history-making moment for all SaaS founders in India. It has unlocked the floodgates for many more IPOs to come; at least a hundred more IPOs will come from India.
Along with Freshworks, there are two more IPOs that happened in the last two weeks, one being Toast, which is a cloud platform for restaurants, and GitLab. And both of them listed really well. And if you take these three IPOs, then in 2021 we saw about 21 IPOs. In 2020 about 16 IPOs had happened and it was called a blockbuster year for SaaS IPOs. Now in 2021, it is already a mega-blockbuster year and we have three more months to go.
One thing to note about all these IPOs is that all these companies started roughly around the 2010-11 timeframe. So it's a 10-year cycle. And they all have similar characteristics. If the decade before that was all about enterprise software, the last decade was about SaaS.
And this industry has grown really, really big - close to about $2trillion of enterprise value. But the thing is that the SaaS industry is just getting started. As the CEO of Vimeo said, we are not even scratching the surface of the SaaS industry.
The coming decade will see very different playbook for SaaS
That's the change that many people are talking about right now, whether it is Ravi Parikh who co-founded Heap, a SaaS company, in 2013 and now again Airplane in 2021. He wrote a blog post that went viral, in terms of saying that the amount of seed money that is available in SaaS is phenomenal.
The number of public companies with more than a billion dollar valuation has increased many-fold. How you go to market has fundamentally changed. Or as the Battery Ventures report talks about - there’s a fundamental shift in how these businesses are measured. There is a lot more sophistication in how SaaS businesses are measured today. This sophistication shows the strength of the SaaS businesses.
Back in the day, people used to evaluate GAAP metrics; they would look at unit economics for consumer companies, and in a very similar way, look at unit economics for enterprises and B2B companies. Since the last three years, SaaS companies have been looking at NRR (Net Dollar Retention Rates).
You can't look at this business with the same unit economics lens that you look at in a B2C company. You'll have to look at how the Revenue Flywheel is getting created. You'll have to look at cohort economics and you will have to look at what is the annual graph for some of these SaaS companies.
What is also fundamentally going to be different is that over the last three years, many companies have proven that you can build the foundation of growth of a SaaS company on a great product experience and product-led growth.
Note product-led growth does not mean that you have a product and there is growth that is happening. Product growth means that you have a CAC (customer acquisition cost) that is zero. You are not investing as much into sales and marketing but still there is growth that is happening. That's what companies like Twilio, Zoom and many other product-led growth companies have been able to establish. So this is a fundamental transformation that is happening in the SaaS industry.
So the next decade we'll see very different playbooks and the playbook that worked in the previous decade from 2010 to 21 will not apply as much for the companies that are growing in the next decade.
Mailchimp acquisition: Their ValueSaaS journey will inspire many
Finally the third, most important event that happened in the last two weeks - this is the biggest in the history of Value SaaS - is MailChimp was acquired by Intuit. MailChimp was already very successful. Twenty years ago, they were capital-efficient. They were growing really fast and they were an idol to many software companies.
With this acquisition the whole world noticed when they saw this eye-popping $12 billion number. Now, if you think about it, it's not very expensive. MailChimp had $900 million of revenue. So from that perspective, it is really only 11X, where the public market multiple today is about 15X. But it was awesome to see a bootstrapped company not give up control while they are trying to grow and get to this outcome. And that will inspire many, many founders to take this path as well.
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