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In which sectors have software companies created the most financial value? I asked myself this question over the weekend. I categorized the top 250 IT companies which spans $675B in market cap (AAPL) to $3B in market cap (ASOS) and created the chart above. B2B Software, which includes Microsoft, Oracle, IBM, and SAP among others represents about 30% of the total IT market cap today. The consumer web (GOOG, FB, Baidu, eBay) is second at 20% of market cap. Semiconductors and Consumer Hardware (led by Apple), tie at 17% each.

When will the tech bull market end? It’s a question that I’m asked with some frequency. There are three fundamental reasons for the bull market. First, technology is changing nearly every part of the economy. Consequently, there are many huge opportunities for entrepreneurs to seize. Our internal analysis shows that only 2% of IT budgets are spent on cloud today. Second, the capital startups require to pursue those opportunities is plentiful. 2014 will be the third largest year in VC fundraising since 2000. Third, the exit market is vibrant and rewards market leaders with massive outcomes. In other words, there is a lot of strength in the fundamentals of the tech ecosystem.

2014 has been a great year for SaaS companies. By my count, 9 of them will have gone public. Meanwhile, SaaS companies in both the public and private markets continue to fetch premium valuations.

To illustrate the rapid appreciation in the value of these SaaS companies, I’ve plotted the share price by round of each business. The color bars in the chart represent Series A, B… through to IPO. The last bar, called Q414, is yesterday’s share price (if the company has already IPO’ed).

I’ve been reading a book called Legacy Of Ashes, which is an exhaustive history of the CIA since its founding more than 50 years ago through to 2007. Reading spy stories is always enthralling, but surprisingly, the book is a fascinating case study in management.

The major theme of the book is the value of intellectual honesty, a principle which was often forgotten according to the research compiled by the author. In case after case, from the Korean War to the Bay of Pigs invasion to the second Gulf War, there were consistent organizational failures to present candid assessments of data and a consistent pattern of deception to further political motives.

What are the pains and aspirations of your customer? Does your product truly solve your customers problems? And fulfill its promise of doing something in a better way?

Most startups wrestle with these questions at their outset, when they are in the customer discovery and customer validation phases of the lean startup cycle. But all startups should reevaluate these questions periodically. After all, a company’s customers evolve with time and so do their jobs. The product-market fit assumptions that held true six months or year ago or three years ago may no longer be valid.

After your SaaS startup has found product market fit, the next evolution of the business is to discover the fundamental unit of SaaS growth. A fundamental unit is the atomic go-to-market team: the minimum number of people in the marketing, sales and support roles to be able to support X customers and generate Y in revenue.

At the point that a startup has discovered their fundamental unit, time, cash and execution become the limiting factors of the business. Most of the other risks in a company’s path have been mitigated. In other words, it’s time to raise a growth round to scale the business.

It’s hard to overstate how powerful negative churn is for a SaaS company. Both New Relic and Zendesk have grown to billion-dollar-plus publicly traded businesses by achieving fantastic negative churn figures: 114% and 120% respectively. in other words, each year existing customers pay these businesses 14 and 20% more than last year.

The recent 2014 SaaS benchmark survey aggregated by Pacific Crest and Matrix indicates that expansion revenue accounts for between 8-26% of total annual bookings, increasing as the company scales.

At the DEMO conference, Danielle Morrill, the founder and CEO of Mattermark presented an impressive statistic. Seed, Series A, Series B and Later Stage startups employ 1M people, up from 650,000 just six months ago, according to Mattermark’s data sources.

While it’s logical to think that the largest and fastest growing startups might employ the majority of startup employees because they hire at stupendous rates, this isn’t the case today. Impressively, Pre Series A company employment has boomed, increasing by more than 2x in the past six months. These seed-stage companies employ 450k.

Hortonworks filed their S-1 last week. Reading through the document, I noticed the company had quite a substantial fraction of professional services revenue; 41% of trailing 12 month revenue is services.

Of the companies we have studied in our S-1 analyses, Hortonworks generates more professional services revenue as a fraction of total revenue than any other company. But, many companies do book a meaningful amount of revenue from professional services. The chart above shows Veeva, Workday, Responses and MobileIron each generate 20% or more of their revenues from professional services (PS).

Negative churn is an incredibly attractive characteristic of a SaaS company because it means that customer accounts are like high-yield savings accounts. Every month, more money comes in, without much effort. This is a powerful effect and can fuel SaaS companies to huge success, as we saw in New Relic’s S-1.

The concept of negative churn is a bit amorphous so let’s illustrate the impact on a startup. The chart above plots the revenue growth of a hypothetical SaaS company for a year. This startup acquires 100 customers per month, each paying $1 per month to use the product. And the company loses 5% of those customers each month, so only about half of the January cohort remains in December.