The SaaS Year in Review - An Investors Perspective

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The SaaS Year in Review - An Investors Perspective

“Creating the Foundation for the Next Phase of SaaS”

It’s that time of the year. LinkedIn is full of posts with predictions for the SaaS industry in 2025. As a precursor to my own 2025 predictions, this is a good time to reflect upon what we have experienced and learned in 2024 as measured by investment performance metrics.

In this week’s SaaS Barometer newsletter, I provide insights on the top SaaS investment and valuation trends in 2024 and will save the 2025 predictions for the next newsletter.

Public SaaS company multiples and growth rates have increased modestly in 2024

2024 was a year that saw public SaaS company enterprise value to revenue multiples stabilize with a 6.3x median EV:NTM Revenue multiple in January and stands at 6.7x today, a 6% increase.

Simultaneously, the median SaaS stock price is up ~9% in 2024. More specifically, the last six weeks has seen multiple software multiples expand by 20%, from about 5.7x at the end of October to 6.7x today. This is a positive and encouraging sign heading into 2025.

Public SaaS company growth rates have increased modestly in 2024, with the median growth rate in 2024 (YTD) being at 17% versus a median of 12% in 2023.

Some may be asking “why else have multiples increased?”. A few ideas below:

• Interest rates stabilized in 2024 and decreased over the past 3+ months
• SaaS spend increased about 9% Year over Year per the Zylo SaaS spend report
• Global IT Spend and Software spend increased in 2024 over 2023
• Global IT spend and Software Spend are both predicted to grow more in 2025

The 2024 Public SaaS company IPOs have performed well

Though the IPO market is not on fire, there have been a few very successful initial public offerings in 2024 including:

• Rubrik went public on April 25th

-Priced at $32 per share

-Closed first day at $37 per share

-Currently trading at $72 per share (Up 125% since IPO)

• OneStream went public on July 24th

-Priced at $20 per share

-Closed first day at $27 per share

-Currently trading at $29 (Up 45% since IPO)

• ServiceTitan went public on December 12th

-Priced at $71 per share

-Closed first day at $101 per share (Up 42% in first day)

-Currently trading at $100 (Up 41% since IPO)

The above bodes well for the market readiness for IPOs, and the stock price increases since the initial offerings highlights the capital sitting on the sidelines is open to new investment opportunities in the cloud.

Private SaaS company M&A activity and price was stable in 2024

Due to a number of factors, including continued cautious capital, a belief that private SaaS company valuations would not increase materially in the near term, and continued elevated interest rates, the number of SaaS acquisitions did not increase materially in 2024:

• Deal volume was 2,095 in 2023 and 1,575 YTD in 2024
• Multiples for private SaaS company M&A also remained level

Private Equity backed strategic buyers are the most active buyers in the SaaS space representing 53% of M&A activity in 2024. Strategic buyers are the second most active representing 35% of M&A activity and PE platform consolidation plays are the third most active representing 12% of activity.

There are a few strategic buySource: Software Equity Group - Q3-24 Reporters that represented a significant share of M&A activity including:

• Constellation Software - 17 acquisitions
• Valsoft - 9 acquisitions
• Access - 7 acquisitions
• IBM and Salesforce - 5 acquisitions each

Below are the top 5 Private Equity SaaS company acquirers in 2024 as measured by number of acquisitions:

• KKR - 7 acquisitions
• APAX - 7 acquisitions
• Main Capital Partners - 5 acquisitions each
• Thomas Bravo - 5 acquisitions each
• Vista Equity - 5 acquisitions each

With the new administration, there is a belief that anti-trust regulation will decrease in 2025 and with the anticipation of additional interest rate cuts in 2025, there is an anticipation that PE and strategic acquisitions velocity and volume will increase in 2025.

Private SaaS company financing

Venture Capital activity has been down in the first three quarters of 2024 vs the same period in 2023, including Q3-24 with approximately $66.5B in funding compared to Q3-23 with $78B (down by 15% YoY). The Q3-24 funding level decreased 16% from Q2-24.

AI continues to lead the market as measured by value of funding and number of deals per the below chart from Crunchbase with $55.1B in funding and approximately 2,600 deals through Q3-24.

One of the more interesting micro-trends is that VC investments decreased in Seed (-7%) and Series A (-11%) rounds, while investments increased in Series B (15%), Series C (36%), Series D (72%) and Series E+ (105%) rounds. This is data per Carta.

Unicorns are facing real challenges in 2024 heading into the future

During the period of Q2-20 through Q1-22 an average of 75 new Unicorns were created per quarter. During the time frame of Q2-22 through Q3-23 there have been an average of 20 new Unicorns created per quarter. In total, 964 Unicorns have been created since Q1-16. Assuming an average of 35 - 40 tech IPOs per year, it would take over 25 years for all Unicorns go public, not to mention that only 6 tech IPOs happened in 2024 and getting back to 40 per year is not going to happen in 2025!

Unicorns have much more AI and Machine Learning DNA in 2024

Another interesting datapoint regarding Unicorns is that in 2024, 44% of newly minted North American Unicorns are AI or Machine Learning companies and VC funding is materially increasing in its concentration in AI or Machine Learning companies per Meritech Capital*:

• Q1-24: 30% of VC funding was in AI and ML companies*
• Q2-24: 44% of VC funding was in AI and ML companies*
• Q3-24: 51% of VC funding was in AI or ML companies*

Summary

The green shoots of SaaS private company investments look positive, yet at the same time are changing the profile of the SaaS industry forever. As a summary of the 2024 SaaS investor activities, I share the following thoughts:

• Technology continues to be foundational to increasing corporate productivity, and the increasing software spend in 2024 was positive - but that spend is shifting from automation to intelligence
• Growth rates and enterprise value to revenue multiples saw modest increases in 2024 - those that have improved their GTM efficiency in 2024 are well positioned to accelerate growth and EV:Revenue multiples in the future
• AI expectations are extremely high and are evidenced in increasing corporate IT and software spend and the increasing mix of VC investments being made in AI and ML
• A less restrictive anti-trust environment and reduced concern with interest rates heading into 2025 provides for a an opportunity for increased M&A activity…for those companies that have positive SaaS performance metrics trends and improving unit economics

The next edition of the SaaS Barometer will include the top five predictions for 2025, including those processes and departments that will be provided with new challenges and opportunities!!!

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