History of Public SaaS Valuations | PVC SaaS Index™

Summary:

• Practical Venture Capital has developed a new proprietary index of publicly traded SaaS companies: the PVC SaaS Index™
• This index tracks the EV / LTM multiple of a basket of 80 SaaS companies in five different verticals
• This multiple has generally been in a range of 5-8x since 2013, with a brief period below (the “SaaS Crash of 2016") and a recent run above
• SaaS multiples dipped to 7.4x at the end of Q1 2020, but rebounded to a new all-time high of 8.7x at the end of May

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Software as a Service (“SaaS”) has been around longer than the cool new “cloud.” It shares some aspects of cloud computing, but its focus tends to be clearer: SaaS is simply the delivery of software applications over the Internet from a server that’s hosted by the SaaS provider somewhere far away.

The first true SaaS startups was probably Concur Technologies, a Bellevue, WA-based provider of travel and expense management services to businesses that was founded by Steve Singh in 1993. Concur began by selling floppy disks and CD-ROMs of expense software in computer software stores. In 1996, they started selling software licenses directly to enterprises, and went public on this model in 1998. Soon after the crash of 2001, the startup’s market cap totaled only $8M.

The category went dark for a while during the 2000–2002 downturn. Concur’s story ends up fine: they evolved again, over the next few years they switched to only selling software accessible to anyone with a browser, and sold to SAP (NYSE: SAP) for $8.3B.

The first big, successful SaaS IPO was Salesforce (NASDAQ: CRM), in 2004. At that time, they were valued at about $1.1B. Under legendary CEO Marc Benioff, it’s been a long, mostly up-to-the-right run for Salesforce and its shareholders: today, the company is worth about $160B.

Since then, I’ve counted about 80 pure-play SaaS/cloud companies that have hit the public markets, and more and more go out each year. I have used them to create the proprietary PVC SaaS Index™, which is a composite of all companies, which:

1. Are now trading on either the NASDAQ or the NYSE: and
2. Derive a significant majority of recognized revenues from long-term contractual commitments (12 months or greater), and which recognize those revenues periodically over the life…