PVC SaaS Index™ | Q1 2022 Update

By Aman Verjee

General Partner, Practical Venture Capital

March 21, 2022

Practical Summary:

· Our PVC SaaS Index™ companies trades at 11x EV / LTM revenues, well within the historical range of 7–12x where SaaS has traded for most of the past 10 years

· The median SaaS multiple has compressed by nearly 40% from where it peaked in late 2021, at 18x

· The highest growth, smallest cap, and least profitable companies have been hit the hardest; SaaS IPOs that happened in 2016 or later have seen multiples drop by over 50%

· Public markets frequently go through “corrections” of 10% or more … for the broad US index, 10–20% corrections have happened 29 times (about once every 2.5 years since 1946)

· The NASDAQ Composite has “corrected” five times since 2010. Historically the private markets have re-priced only slightly, and with a 3–6 month delay; we think this time is probably a little different, with a more significant (but ultimately healthy) valuation reset in private markets

***

This post is an update in a quarterly series of posts that tracks the PVC SaaS Index™, a basket of publicly traded US-listed SaaS companies.

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 big SaaS IPO was Salesforce (NASDAQ: CRM) in 2004, and now we have over 120 pure-play SaaS/cloud companies in our proprietary PVC SaaS Index™, which includes:

1. Are now trading on either the NASDAQ or the NYSE: and

2. Derive the large majority of recognized revenues from long-term contractual commitments (12 months or greater), and which recognize those revenues periodically over the life of these contracts.

2022 Valuation Update

The chart below shows the historical EV / LTM (“enterprise value” to “last twelve months” of revenue) going back to 2015.

Chart 1: Historical SaaS Valuations