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SaaSletter - BVP "State of the Cloud" @ SaaStr Annual 2021
A long-delayed personal project, returning from an exciting SaaStr Annual 2021 has sparked the first issue of SaaSletter.
BVP's "State of The Cloud" at SaaStr Annual 2021
While I have a few excerpts and takeaways below, I would strongly recommend reading BVP's entire slide deck here.
A significant portion of the excellent "Founder Confidential" CEO panel at SaaStr 2021 (video here) centered on "crazy valuations" in SaaS today with the implication investors are irrational.
Throughout SaaStr Annual, Jason Lemkin would make the point that these investors "are not stupid!!!"
And BVP's very helpful inclusion of growth adjusted revenue multiples in their deck supports that:
At first glance - with a 180% increase in this metric since 2017 - it would be yet another reinforcement of the "investors are nuts" talking point.
However, a comparison of growth-adjusted multiples of private SaaS (using BVP's Cloud 100 here) versus public company SaaS (using Jamin Ball's Clouded Judgement Substack) shows private market SaaS valuations might be quite rational.
The basic growth-adjusted multiple math:
0.4x for top private SaaS
0.7x for publicly traded SaaS
equals a 43% discount
Given the size + depth of private capital markets today - with robust secondary marketplaces (like Forge and Equity Zen) and active "cross over" investors (like Tiger, Coatue, and Maverick) - a 43% discount is quite high and exceeds a normal illiquidity discount (typically 15%-20%).
Of course, if publicly traded SaaS companies are in a bubble (plausible IMHO), this relative value arbitrage won't really work. As context, public SaaS companies traded at an average of 0.28x growth adjusted pre-COVID (per Morgan Stanley, May 2021 "Software Gut Check - What's Different This Time?" report):
Other BVP x SaaStr 2021 Highlights
Adding a new measure of capital efficiency ...
... as one of their 6 flagship cloud bench marking metrics:
Great data set on growth rates - amazing to see 90% growth rates in a sector:
As an old-timer that recalls when 8x revenue was PAYING UP - and middle market SaaS companies could be acquired at a single-digit EBITDA(!) multiples - that 34x revenue multiple causes a bit of sticker shock:
Nice historical view on the rise of unicorns:
... and some interesting embedded math on the distribution of unicorn values.
The top 12.5% of companies "only" make up 20% of the aggregate unicorn values - meaning it is more evenly distributed than I would have guessed:
Again, there is a lot of value in the BVP @ SaaStr Annual 2021 deck - go download it here.
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