On Friday, Klaviyo filed their S-1 - one of the first software companies to do so since the beginning of the economic downturn in late 2022. It’s a marvel of business with strong growth, great efficiency & the potential to reignite interest in SaaS IPOs.

Klaviyo is a customer data platform company which ingests marketing data & empowers their customers to automate their marketing with data & AI. The company raised $455m in venture capital, but has used only $15m, growing nearly entirely on profits.

Quoting from the S-1, “Our go-to-market strategy is primarily product-led, and we attract the majority of our new customers through inbound channels, such as word-of-mouth, agency partnerships, and platform integrations.”

The PLG efficiency is tremendous both in cash & sales efficiency, which tops the charts of public software companies at 1.03 for the last 6 months. When the company spends $1 in sales & marketing expense, Klaviyo produces $1.03 in gross profit next year.

Shopify is a key partner & significant investor in the business. “Approximately 77.5% of our total ARR as of December 31, 2022 came from customers who also use the Shopify platform; however, the vast majority of those customers came to us through inbound channels or through other means such as our marketing agency partners. For 2022, approximately 10.6% of our new ARR was attributable to customers that chose to install Klaviyo through Shopify’s App Store.”

Braze is the most recent marketing SaaS company to IPO & we can contrast the two businesses. Braze targets enterprise buyers with a sales-led motion.

At IPO, the companies grew at similar rates, but Klaviyo is roughly 215% larger in revenue.

Gross margins are comparable, with Klaviyo five percentage points higher. Braze may offer more professional services / support to larger customers which may reflect in gross margin.

The difference in customer base is apparent in the ACV : $4.5k vs 169k, a 37x delta. However, NDRs (net dollar retention) are equal. Typically, enterprise customers expand more than SMB.

Klaviyo’s sales efficiency tops the market at 1.04 benefiting from the strategic partnership with Shopify & their PLG motion.

On the profitability & cash flow metrics, this compares Braze during the low interest rate environment when public market investors didn’t factor efficiency heavily. Klaviyo shines : generating profits & positive cash flow from operations.

A basic linear model using Revenue Growth, Sales Efficiency, Revenue, Gross Margin, Profitability, & CFO / Revenue suggests the company should trade at about a $10b valuation with an 11.2x multiple if the stock behaves similarly to the rest of the 75 or so publicly traded software companies.

Klaviyo is a fast growing, incredibly efficient, profitable software company : an ideal specimen for one of the first software IPOs in the fall. Congratulations to the team on building a paragon of a SaaS business!