If you visit Yahoo Finance today, type in the ticker of every SaaS stock, copy and paste the image into a document, you might create a chart that looks like the one above. A cursory glance at the plunging lines in most of these names might send you into a panic, only to tweet in alarm that the bottom is falling out of the SaaS market. Chicken little. Chicken little.
I’ve been following Casey Johnston’s journey on Ars Technica to switch keyboard layouts from the ubiquitous Qwerty layout to the Dvorak layout with great interest and empathy. (part 1 and part2). About six years ago, I went through the same process to learn Dvorak. It took me five tries to succeed.
Judging by the volume and passion of the comments in that series, keyboard layouts are a topic many people are pretty passionate about. I suspect it’s because we’re all trying to eke out a little more each day from ourselves.
Last week, we analyzed the fund raising history of billion dollar SaaS companies and determined SaaS startups are raising nearly twice as much capital as 16 years ago before going public. Given that trend, I wondered if there is there any truth to the idea that startups today require less capital than before to succeed.
To answer that question, I’ve taken the same basket of public SaaS companies and computed a revenue-on-invested-capital (ROIC) across the four 4-year IPO cohorts from 1998-2014. The revenue-on-invested-capital is the revenue at IPO divided by the venture dollars raised pre-IPO, inflation adjusted and measured in 2014 dollars. In other words, the efficiency score marks the number of venture dollars invested to generate one revenue dollar at IPO-time.*
One of the cloud’s great promise has been cost-reduction and for a while, we’ve chanted a mantra that startups require less capital than before to get started and ultimately succeed. As the number of publicly traded SaaS companies has grown with time, it’s possible today to examine whether those statements are proven in the data, at least for those 41 publicly traded companies.
I’ve gathered the financing histories of the 41 publicly traded SaaS companies and adjusted them for inflation. The chart above shows the amount of capital raised in millions of 2014 dollars by each publicly traded SaaS company before going public. Click on the image to see a bigger copy. The blue vertical line is the median across this data set, $70M.
As I’ve described in a previous post, this blog’s goal is to create and sustain relationships with readers across the startup landscape. Tuning the engine is proving much harder than I expected and I suspect that content marketers are facing similar issues.
For example, over the past 18 months I’ve witnessed a halving of RSS subscribers to this blog. They have fallen from about 4,000 to about 2,000. I wasn’t sure what the cause could be, until I compared the RSS data with email subscriber data. The chart above contrasts the two data sets. Clearly, email subscriptions are cannibalizing RSS subscriptions.
Last week, I had a surreal experience with Uber. It was mid-morning on Friday and I pushed a button to request an UberX as I walked out of Sightglass, the coffee shop deep in the South of Market district.
When the car arrived a few minutes later, I got in. Without saying a word, the driver passed me his iPhone. Confused, I looked up from my emails and he mouthed to me, “I am deaf.” I understood and typed in my destination in South Beach into his Google Maps and returned his phone to him. Away we went. A few clicks on my phone later, I found the gesture in sign language for thank you, touching my chin and moving my hand forward. I signed “thank you” as I stepped out of the taxi cab.
Earlier this week, I attended the Spring YCombinator Demo Day. I’ve been attending for six years now. Each time, I’m impressed by the intelligence, ambition and the polish of the founders presenting companies only a few weeks or months old.
As I listened to the pitches, I wondered if the types of startups founders decide to build at YC has changed over time and whether those trends are lagging or leading indicators of the market as a whole. At each Demo Day, the YC team provides investors a list of all the companies pitching and I’ve kept a few. To get a sense of the broader trends in YC companies, I’ve compared the Winter 2012 class and the Spring 2014 class by sector (consumer v. enterprise), segment (ecommerce, education, social, gaming, delivery) and by revenue model (subscription, ads, transactional).
Imagine a city council meeting with three agenda items: a $100M power plant zoning approval, a request to build a $10,000 bike rack for city sidewalks and and a $100 proposal to buy refreshments for the annual picnic. The power plant discussion takes all of 3 minutes to reach approval, as does the refreshment budget. But the $1000 bike rack debate drags on for hours as council members debate the right materials, the best color scheme and the right way to announce the project.
Over the past few years, I’ve debated the existence of a Series A crunch and found in that analysis that the volume of Series As was increasing. This trend hasn’t abated. The number of Series As has grown by 31% annually for the past 5 years, reaching more than 831 Series As in 2013, up from 284 in 2009. In short, no founder should be concerned about the Series A market.