2019 Review: High-growth SaaS IPOs


Alex Clayton

Feb 17, 2020

Logos of High-growth SaaS IPOs in 2019:

Last year I wrote a post summarizing the 2018 cohort of SaaS IPOs. Not surprisingly, more SaaS companies went public in 2019 (although not as many as in 2018). We're likely to see a significant amount in 2020 given the current market environment and strong public market interest in SaaS companies. Before getting into the 2019 cohort, how have the 2018 group of high-growth names performed over the past year?

Out of the 16 high-growth names that went public in 2018, 2 have since been acquired by VMWare (Carbon Black and Pivotal) and every company has increased their market cap significantly except Dropbox and Pivotal. The average increase in market cap from these companies is 154%. The chart below shows market cap at IPO vs. today, sorted from highest --> lowest market cap as of each company's IPO.

Source: Public market data as of 14-Feb-2020. * indicates acquired businesses.

This next chart looks at each company's enterprise value / NTM (next-twelve-months) revenue as of my post a year ago and today's. Again, on average this group of companies has increased their multiple by 35%. Most of the increase in market cap is due to their revenue growth over the past 1-1.5 years, even though multiples have expanded.

Source: Wall Street Research and public market data as of 14-Feb-2020. * indicates acquired businesses.

Now, on to the 2019 cohort of high-growth SaaS companies, of which there were 12. Interestingly, 2 out of the 12 were private equity owned -- Ping Identity (Vista) and Dynatrace (Thoma Bravo). Given the rise of software acquisitions by private equity funds, as well as the massive funds both Vista and Thoma Bravo have raised, I suspect we'll see more SaaS IPOs owned by private equity. The other 10 companies were venture-backed. Just as I did for the 2018 cohort, below, you'll find benchmarking and descriptions of the stats and KPIs that I find most interesting and that should give you a picture of what you would have needed to make it public as a SaaS company in 2019. For deeper dives into specific companies, see other S-1 breakdowns here. To see many of these same metrics and more for all current public SaaS companies, click here.

Years from Founding to IPO

Firstly, how long did it take? The below chart has years from founding to IPO year. The median is 10 years. Note the scale of these companies varies widely (more in next section).

Source: Company S-1's

LTM (last-twelve-months) Total Revenue at IPO Quarter ($M)

All of these companies have meaningful scale -- the median LTM revenue is $242M.

Source: Company S-1's

Total Revenue YoY Growth Rate at IPO Quarter

As expected, these businesses are growing revenue quickly. The median growth rate is almost 50% year-over-year. Note the slowest growing businesses --Dynatrace and Ping -- were private equity-owned. Coincidentally, CrowdStrike and Zoom had the exact same year-over-year revenue growth rate in their IPO quarter.

Source: Company S-1's

LTM (last-twelve-months) Subscription / Recurring Revenue as a % of Total Revenue

While all have subscription models, only 5 have ~100% of their revenue as subscription or recurring in nature. The below benchmarks LTM subscription or recurring revenue as a percent of total revenue. The median is 97%. The other ~3% is mostly comprised of professional services or in's case, interest on funds held for their customers.

Source: Company S-1's

Implied ARR at IPO Quarter ($M)

A few of these companies report ARR (annual recurring revenue) or it can be derived by multiplying quarterly subscription revenue * 4. The median is $278M.

Source: Company S-1's

Implied Net New ARR at IPO Quarter ($M)

The chart below benchmarks how much net new implied ARR each company added at IPO quarter. The median net add is $19M+.

Source: Company S-1's

LTM (last-twelve-months) GAAP Gross Margin

Moving on to the P&L: the median gross margin for this group is ~75%.

Source: Company S-1's

LTM (last-twelve-months) GAAP Operating Margin

As expected, almost every company is losing money on an operating-basis and the median LTM GAAP operating margin is ~(23)%.

Source: Company S-1's

Dollar-based Expansion / Net Dollar Retention at IPO Quarter

Expansion is a critical KPI for any SaaS company and while some of these businesses have slightly different definitions, they’re benchmarked below. The median is 126%.

Source: Company S-1's

Average Subscription Revenue per Customer (Average ACVs or Annual Contract Value) at IPO Quarter

Public companies typically don’t report detailed customer segment information so it’s hard to know exactly how much all their customers are paying, but we do have averages. The below benchmarks annualized subscription revenue over total customers at IPO quarter. It's no surprise Medallia, which focuses on large enterprises and, on small-and-medium-sized businesses, have the largest and smallest average ACV, respectively. The median is $24.9K.

Source: Company S-1's

Total Full-time Employees (FTEs) at IPO Quarter

The scale of revenue varies widely in this group and so does the employee base. The below benchmarks total employees at IPO quarter. The median is over 1,100.

Source: Company S-1's

LTM (last-twelve-months) Revenue per Full-time Employee

While the number of employees is helpful to assess scale, revenue per employee is an interesting proxy for efficiency. Of course, each company has a different product, market, delivery model, price and end-customer, so this metric may not be perfectly comparable across the group.

Source: Company S-1's

Sales Efficiency: Implied Months to Payback

It’s hard to benchmark precise customer acquisition costs since most companies don’t report new customer adds per quarter, but it’s possible to standardize and find the months to payback using a CAC ratio (implied net new ARR * gross margin / sales and marketing spend of prior quarter), which is outputted below for each company. It's not surprising to see Medallia with the largest customer acquisition cost given their high average ACV. Alternatively, Zoom has a viral and self-serve go-to-market and has the lowest customer acquisition costs. The median implied months to payback is 20.

Source: Company S-1's

Total Equity Capital Raised ($M)

10 out of the 12 businesses were venture-backed (Dynatrace and Ping were owned by private equity firms and are thus, not in the chart). The below represents total equity capital raised in the private markets. The median is $270M.

Source: Pitchbook and company S-1's

Implied Cash Burn to IPO ($M)

Scaling a software company is expensive, and most of these companies burned through significant amounts of cash to reach their IPO. The below benchmarks implied burn — cash on the balance sheet at IPO quarter minus total equity capital raised. Some of the venture capital dollars were likely secondary, which is not reported, so the data below is a proxy for total burn. The median burn for this group was ~$178M.

Note that Zoom is the fastest growing and most efficient SaaS company ever (out of 75+ companies) and generated cash on their way to IPO.

Source: Pitchbook and company S-1's

Valuation — Market Cap at IPO ($M)

The median market cap at IPO pricing was almost $3.5B.

Source: Company S-1's, FactSet. WORK price based on reference price

IPO Size ($M)

Each company also raised significant dollars from the public markets. The median offering size was $374M and this includes both primary and secondary. Note Slack went public via a direct listing so they did not raise primary capital from public market investors and not included below.

Source: Company S-1’s, FactSet, and includes greenshoe

Post-IPO Stock Performance

Each company started trading in 2019, and while some are still in the lock-up period, it’s interesting to look at performance to date. Not surprisingly, these companies have seen massive appreciation in the public markets. The median return from IPO price for this group is 59%.

Source: Public market trading data. As of 14-Feb-2020. Assumes WORK reference price of $26

EV / NTM Revenue Multiples

In most cases, high-growth software companies are valued on a multiple of forward revenue. The below benchmarks enterprise value over NTM (next-twelve-months) revenue. The median is ~15x. You can see the multiples for the entire list of high-growth public SaaS companies here.

Source: Public market trading data and FactSet estimates as of 14-Feb-2020

Forward / NTM (next-twelve-months) Revenue Growth

These businesses are growing revenue quickly and their valuation multiple is obviously correlated with growth. The below benchmarks NTM (next-twelve-month) growth rates — the median is ~30%. Note that most high-growth SaaS companies tend to beat their revenue estimates in the first few quarters post their IPO, known as showing "beat and raises", so these estimates are most likely conservative.

Source: Wall Street Research as of 14-Feb-2020

What did it take to IPO as a SaaS company in 2019?

To make it public as a SaaS company in 2019, you were founded ~10 years ago, at almost $300M in implied ARR and grew ~50% year-over-year, have ~75% GAAP gross margins, losing money, have a dollar-based net expansion rate of ~125%, sell a product with an average ACV of ~$25K, have over 1,100 full-time employees, raised almost $300M from venture investors (or owned by a private equity fund) and burned through almost $200M of it, and sold almost $400M in stock to public market investors in an IPO at a valuation of almost $3.5B! And since then, you're up almost 60% from IPO price.

Of the 12 high-growth SaaS IPOs that traded in 2019, they raised a cumulative $5.0B in the public markets. While the overall number of high-growth SaaS IPOs went down in 2019 as compared to 2018, the dollar value increased. Public market investors continue to be eager to invest in rapidly growing and efficient SaaS companies. 2020 is likely to be similar.

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