Negative EBITDA, positive cash flow. The median SaaS business had trailing twelve month revenue of $427mm, EBITDA of -$16mm, but positive operating cash flow of $42mm thanks to up-front collections on annual contracts. So long as you’re growing (the median annual growth rate is 23%), investors will overlook negative EBITDA especially if the business is cash flow positive after working capital changes.
SaaS margins are still terrible. Investors and founders love saying “SaaS margins are great.” They’re not. They’re horrible. The median EBITDA margin for the companies above was -3%. Fixed costs for SaaS are terribly high and worse yet, those fixed costs are mostly people, meaning the only way to materially cut costs is layoffs. If you’ve ever fired someone, you know cutting costs by cutting people is not easy and hurts the culture and morale of remaining members.
Growth is strong. The median of 23% is good given the size of these companies. The average is even better at 27%.
Recent IPO’s are killing it. Some of the latest IPO’s are trading at unreal multiples: Hashicorp is at 52x, Braze is at 29x, Gitlab is at 49x, and Amplitude is at 41x. Some recent IPO’s are trading at more reasonable multiples, so the disparity in valuation for premium SaaS versus just good SaaS is very wide.
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