Efrat Kasznik, President, Foresight Valuation Group March 16th, 2016

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SaaS: Market and Valuation Trends

¨  According to Software Equity Group (SEG), SaaS revenues will likely represent about 25 percent of the overall software market in the next five years.

¨  Growth in M&A Activity (SEG 2015 Data): ¤ SaaS mergers and acquisitions transactions grew 30

percent in 2016 ¤ Spread across many different sectors and segments ¤ SaaS exit multiples are about 2x higher than On-

Premise exit multiples

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Growth in SaaS M&A Activity (Source: SEG 2015 Report)

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SaaS M&A By Product Category (Source: SEG 2015 Report)

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SaaS Company Exit Multiples (Source: SEG 2015 Report)

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On-Premise Company Exit Multiples (Source: SEG 2015 Report)

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Factors Contributing to SaaS Valuations

¨  Higher Rate of Cloud Adoption by Enterprise Clients: ¤  Cost Savings, efficiency outweigh Security concerns

¤  Drives increase in M&A and prices

¨  Accelerated revenue growth ¤  Large cash “trough”: Marketing first, Revenues Later

¨  Optimizing User Metrics: The SaaS Dashboard ¤  Customer Acquisition Cost (CAC) ¤  Monthly Recurring Revenues (MRR)

¤  Customer Lifetime Value (LTV) ¤  Manage Churn to a minimum

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The SaaS Cash “Trough”

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SaaS Metric Definitions

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Key SaaS Metrics: the “Holy” Ratios

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Simple Example: Managing Ratios

¨  CAC = $1,000 ¤ $100,000/year sales person, 100 customers a year

¨  MRR = $50 (monthly price) ¨  Monthly Churn = 2% (leaving every month) Ratios: ¨  LTV = 50/0.02 = $2,500 ¨  Months to recover CAC = 1,000/50 = 20 (too long) ¨  LTV/CAC = 2.5 (too low)

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Improving SaaS Metrics

¨  Lower CAC: ¤ Increasing the sales quota ¤ Reducing the Salary

¨  Higher LTV: ¤ Increasing MRR (charging more per customer) ¤ Reducing Churn (key metric for SaaS companies)

Foresight Valuation Group © 2016

THANK YOU!

Efrat Kasznik President, Foresight Valuation Group

ekasznik@foresightvaluation.com www.linkedin.com/in/ekasznik

650-561-3374

www.foresightvaluation.com

Presentation available upon request