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Sneak peek at future of SaaS investing

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Re: Sneak peek at future of SaaS investing

#61

Post by woodpanel »

tyre wrote: post #28

I think we'll need more examples then just Buffer. Everyone knows Buffer is a successfully bootstrapped company that grew kind of big but not massive. If the author gave five other examples, then there's a case, but pointing out the one known example doesn't provide enough evidence in my opinion. A separate point on style and punctuation: too many em dashes in the wrong places. > What would make Buffer — a good inves…

Who says SaaS needs to be a startup? In the stockmarket we can find similar trends, with existing companies that switched to a SaaS model.

- Adobe (dominates DTP, can squeeze companies worldwide, small and large after switching to a subscription model)

- SAP (investors were overall pleased with their SaaS offerings)

- Microsoft (don't know the revenue stake Office 365 represents, but it's currently enough to subdue Slacks Post-IPO performance)

- Slack

But also mid- to small-cap companies like RIB Software, which offers SaaS for real-estate related industries.

Of course, thouse examples don't mean that their balance sheets provide evidence – but rather that stock market participants see SaaS-models as a path for constant high-margin low-volatilty growth.

Re: Sneak peek at future of SaaS investing

#62

Post by zepearl »

tempsy wrote: post #51
SkyMarshal wrote: post #48

Earlier quoted context omitted.

I'm a little slow this morning but am having trouble parsing what the opposite of "too good to be true" is. Too bad to be false?

meaning it's plainly bad the risk you take to earn 15% is way too high to justify such a small return. if you want to earn 15% just invest in some REITs and call it a day

Could you please expand "REITs"? (no clue what a REIT is)

Re: Sneak peek at future of SaaS investing

#63

Post by icedchai »

zepearl wrote: post #62
tempsy wrote: post #51

Earlier quoted context omitted.

meaning it's plainly bad the risk you take to earn 15% is way too high to justify such a small return. if you want to earn 15% just invest in some REITs and call it a day

Could you please expand "REITs"? (no clue what a REIT is)

REITs are "real estate investment trusts." Basically they are stocks in companies that own tons of property, bring in large amounts of rental income, and have to pay out a percentage as dividends. Many people like them for that guaranteed dividend.

Re: Sneak peek at future of SaaS investing

#64

Post by hogFeast »

rcarrigan87 wrote: post #50
hogFeast wrote: post #44

Earlier quoted context omitted.

Just as the shrewd investors who have been printing cash here for decades are moving out. Always right on time.

Seems like this trend is only starting to begin... https://earnestcapital.com/investment-memo-fund-2/

Yep, that is what everyone thinks at the top. The smart money is in cash and will buy out the "long-term/trend to infinity" crowd at the bottom.

Re: Sneak peek at future of SaaS investing

#65

Post by pklee »

hogFeast wrote: post #64
rcarrigan87 wrote: post #50

Earlier quoted context omitted.

Seems like this trend is only starting to begin... https://earnestcapital.com/investment-memo-fund-2/

Yep, that is what everyone thinks at the top. The smart money is in cash and will buy out the "long-term/trend to infinity" crowd at the bottom.

Very interesting article on earnest and very well done. The author seems to argue that there is a bond like investment instrument that SaaS are starting to become. The S curve the author talks about is a continuum in my limited observation. There are companies at EVERY ONE OF THOSE points i.e. in the past as well as in the future there are commodity companies. It is not clear to me why he target SaaS to be that.

Re: Sneak peek at future of SaaS investing

#66

Post by doh »

sombremesa wrote: post #59
tunesmith wrote: post #58

Earlier quoted context omitted.

What does "up until the economy is up to the right" mean? up to the right sounds like a good growth path to me.

I believe GP means that as long as everyone has more money than they know what to do with, SaaS companies will more reliably find business (partly because other new companies, SaaS or not, are popping up and using them). However, if the economy took a downturn, these same SaaS companies would be some of the first to bite the dust. Many modern consumer companies are able to hedge against this through the fact that the…

This is exactly it.

Re: Sneak peek at future of SaaS investing

#67

Post by doh »

reggieband wrote: post #53
doh wrote: post #49

Earlier quoted context omitted.

It was poorly phrased so I changed it. I meant that if a big chunk of your revenue comes from services, they are not going to be very enthusiastic about your business.

Thank you for the clarification. I hope I can ask another. What is the alternative that would make them enthusiastic? That is, if I am bootstrapping a business and want to attract these kind of investors then what sources of revenue would they like to see other than revenue from services?

Well, SAAS. That means subscription revenue, preferably in a market with large TAM that has simple CAC/LTV and churn calculations. Everything else is essentially a hassle.

Re: Sneak peek at future of SaaS investing

#68

Post by doh »

tomkubik wrote: post #55
whoisnnamdi wrote: post #52

Earlier quoted context omitted.

The re-focus on SaaS as the only class of investment that can reliably generate returns and avoid zeros or capital loss is a very real trend. Would emphasize your point around services - SaaS investors are generally allergic to this stuff and prefer services to make up as little of revenue as possible. It's typical low margin and not seen to be very "strategic" (though this could be debated). SaaS is also much easier…

Risk / return trade-off still holds - great insight! Performance through-the-cycle is a big question. One can point to Salesforce (founded 1999, IPO 2004), which has been around for 20+ years... However, big sample bias here (ditto for my article, with sample n = 1). Salesforce, a big-category-defining company - may not be representative of moderately-sized businesses. Whoisnnamdi - per your post, revenue retention l…

My point wasn't that all SAAS business are going to be in trouble, rather than the growth equity is going to be impacted because they are funding only SAAS businesses. There is no hedging and as such, once business stop paying for certain SAAS services, they will in turn stop paying for others and so on and so on.

Re: Sneak peek at future of SaaS investing

#69

Post by doh »

whoisnnamdi wrote: post #52
doh wrote: post #31

Only a little related to this, in recent months I've spoken to ~60 growth stage equity funds and found out that essentially all transformed to be SAAS focused investors. That means they abandoned 1/3 portfolio strategy they used to have (1/3 loses money, 1/3 returns exactly 1, 1/3 returns fund) but instead are focusing on steady returns by SAAS companies at 2-3x of the investment. There are a few major implications:…

The re-focus on SaaS as the only class of investment that can reliably generate returns and avoid zeros or capital loss is a very real trend. Would emphasize your point around services - SaaS investors are generally allergic to this stuff and prefer services to make up as little of revenue as possible. It's typical low margin and not seen to be very "strategic" (though this could be debated). SaaS is also much easier…

Exactly, SAAS is much easier to analyze, that's why everyone moved to SAAS investing because it doesn't have many "flips of coin" in order to be successful.

> As far as a downturn taking down growth equity - time will tell.

As with everything. My prediction is, as the concentration around SAAS increases, more funds will be created (especially if no other instruments can produce such a high predictable growth) leading to more concentration.

If I didn't have a business to run, I would be already trying to raise fund for Series A and B to focus on non-SAAS business. You get quite heavy discount on them as there is little competition and and you again get the 1/3 business model of early stage VC, which can produce outsized returns. over just 3x.

Re: Sneak peek at future of SaaS investing

#70

Post by louisv »

doh wrote: post #31

Only a little related to this, in recent months I've spoken to ~60 growth stage equity funds and found out that essentially all transformed to be SAAS focused investors. That means they abandoned 1/3 portfolio strategy they used to have (1/3 loses money, 1/3 returns exactly 1, 1/3 returns fund) but instead are focusing on steady returns by SAAS companies at 2-3x of the investment. There are a few major implications:…

Who are the biggest "nice to have" SAAS companies you think could go under in the next crisis?
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