Better Cash Efficiency Contributes Most To Private SaaS Company Excellence

Survey highlights key differences that set best-in-class private SaaS companies apart

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Oct 15, 2019, 08:55 ET

SAN FRANCISCO, Oct. 15, 2019 /PRNewswire/ -- KeyBanc Capital Markets Inc. (KBCM), the corporate and investment banking unit of KeyCorp (NYSE: KEY), today released results from its Technology Group's 10^th annual Private SaaS Company Survey (formerly known as the Pacific Crest Securities Private SaaS Company Survey), the benchmarking report by which the Software-as-a-Service industry measures financial and operating performance.

Overall, growth remains strong among private SaaS companies, with survey respondents reporting a median of 40 percent year-over-year organic annual recurring revenue (ARR) growth. That being said, only one-in-five companies are operating at or above "The Rule of 40%," a much-discussed key measure of best-in-class SaaS company performance calculated by adding a company's growth rate and free cash flow (FCF) margin. Interestingly, the survey results found that "The Rule of 40%" performers do not necessarily distinguish themselves with lower churn rates compared to those that fall below the threshold—what sets them apart are significantly lower customer acquisition cost ($0.51 vs. $1.26) and capital consumption (0.7x vs. 1.5x) ratios.

"As the SaaS industry continues to become more sophisticated, operators and investors are looking more closely at performance-driving metrics," said David Spitz, managing director of KBCM's Technology Group and primary author of the survey. "This year's survey results show that while strong retention is clearly a necessary component of efficiency, the most elite performers differentiate themselves most in terms of high sales productivity and low capital consumption."

David Skok, investor at Matrix Partners, author of the SaaS-focused blog forentrepreneurs.com and active supporter of the survey for the past eight years, added: "SaaS businesses continue to play a pivotal role in our economy. As they've matured, it's become increasingly important to benchmark and track core performance metrics so that they're maximizing potential. The survey continues to be a yardstick for SaaS companies, especially those striving for 'The Rule of 40%' excellence."

The KBCM Private SaaS Company Survey establishes operational and financial benchmarking data for executives and investors in SaaS companies, from go-to-market selling strategies, customer retention rates and customer acquisition costs, to operational management, growth and margin structures. To view the full survey results, visit us at www.key.com/saassurvey.

About the KBCM Technology Group Private SaaS Company Survey
The KBCM Technology Group Private SaaS Company Survey was first developed by Pacific Crest Securities in 2010 to provide benchmark performance metrics for SaaS companies. Pacific Crest was acquired by KBCM in 2014 and rebranded as KBCM Technology Group, combining the technology specialist approach of Pacific Crest with the expanded capabilities and broader resources of KBCM and its parent, KeyCorp (NYSE: KEY). More than 400 senior executives from SaaS companies around the world participated anonymously and confidentially in the 2019 survey. Responses were submitted online between June and July 2019. KBCM cannot verify accuracy of responses. Observations and commentary contained herein relate solely to the survey results and cannot necessarily be applied elsewhere. For more information about the KBCM Technology Group, please visit us online.

About KeyBanc Capital Markets
KeyBanc Capital Markets is a leading corporate and investment bank providing capital markets and advisory solutions to dynamic companies capitalizing on opportunities in changing industries. Our deep industry expertise, broad capabilities and unique ideas are seamlessly delivered to companies across the Consumer & Retail, Diversified Industries, Healthcare, Industrial, Oil & Gas, Real Estate, Utilities, Power & Renewables, and Technology verticals. With over 800 professionals across a national platform, KeyBanc Capital Markets has more than $32 billion of capital committed to clients and an award-winning Equity Research team that provides coverage on over 600 publicly-traded companies.

About KeyCorp
KeyCorp's roots trace back 190 years to Albany, New York. Headquartered in Cleveland, Ohio, Key is one of the nation's largest bank-based financial services companies, with assets of approximately $144.5 billion at June 30, 2019. Key provides deposit, lending, cash management, and investment services to individuals and businesses in 15 states under the name KeyBank National Association through a network of over 1,100 branches and more than 1,500 ATMs. Key also provides a broad range of sophisticated corporate and investment banking products, such as merger and acquisition advice, public and private debt and equity, syndications and derivatives to middle market companies in selected industries throughout the United States under the KeyBanc Capital Markets trade name. For more information, visit https://www.key.com/. KeyBank is Member FDIC.

SOURCE KeyCorp