SaaS Company Survey Results

8/2/2019 SaaS Company Survey Results

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2010 Pacific Crest Private SaaS Company Survey Results

August 10, 2010See final page for important disclosures


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SaaS Survey Data Set

78 private SaaS company respondents

Administered to CEOs and CFOs, May-June 2010

70% multi-tenant/single instance

85% with no perpetual license software at all

Diverse mix:

$0-$60M+ in revenues (~$18M median)(1)

10-400+ employees (~100 median)

10-2,000+ customers (~500 median)

$100s to $100Ks avg. ACV(2)

(~$50k median)

~50% horizontal apps / ~50% vert. apps, infrastructure, etc.

(1) Annual run rate (ARR) SaaS revenues.(2) ACV = average annual contract value.


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Growth Rates


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How Fast Did/Will You Grow GAAP Revenues?

Median 2009 GAAP Rev Growth 28%

Median 2010E GAAP Rev Growth 34%

Median 2009 GAAP Rev Growth 28%

Median 2010E GAAP Rev Growth 34%

1

21

16

78

19

0

7

28

4

13

20

0

5

10

15

20

25

30

< 0% 0%-15% 15%-30% 30%-45% 45%-60% > 60%

NumberofCompanies

2009 Revenue Growth 2010E Revenue Growth

Wide diversity inGAAP revenuegrowth ratesamongparticipants, withmedian of 28%growth in 2009increasing to34% in 2010E


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How Fast Did/Will You Grow ARR Revenues?

Median 2009 ARR Growth 33%

Median 2010E ARR Growth 45%

Median 2009 ARR Growth 33%

Median 2010E ARR Growth 45%

1

15

18

5

10

21

0

5

23

7

11

24

0

5

10

15

20

25

30

< 0% 0%-15% 15%-30% 30%-45% 45%-60% > 60%

Number

ofCompanies

2009 ARR Growth 2010E ARR Growth

Not surprisingly,annual run rate inthe dollar valueof SaaS dealsunder contractreveals morerobust growth 33% in 2009 to45% in 2010E


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Median 34%

62%

34%

10%

34%

23%

0%

20%

40%

60%

80%

$40M

ARR

2009GA

APMedian

v

RevenueGrowth

v

53%48%

24%

47%

29%

0%

20%

40%

60%

80%

$40M

ARR

2010EGA

APMedian

v

Revenue

Growth

v

Growth Rates Vary by Company Size

Median

28%

As expected,smallercompaniesexpect to growfaster than largerones data formid-sized

companies($15M-$25MARR) appear tobe anomalousdue to lowersample size


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5

1

65

4

7

5

4

3

1

2 1

10

3

1

3

1

12

12

1

0

2

4

6

8

10

12

14

16

18

20

$40M

ARR

Numberof

Companies

v

0%-15% Growth 15%-30% Growth 30%-45% Growth 45%-60% Growth > 60% Growth

Growth Rates Vary by Company Size Detail(1)

Median 62% Median 34% Median 10% Median 34% Median 23%

(1) Growth represents 2009 GAAP revenue growth.

Nonetheless,detail revealssome fastgrowers amongthe largercompanies 11of 32 companiesover $15M inrevenue aregrowing 30%+annually


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2 2

10

31

4

62

3

1

3

2

3

1

10

2

3

2

0

2

4

6

8

10

12

14

16

18

20

$100K ACV

Numberof

Companies

v


2009 Growth as a Function of Average Contract Value

Median 26% Median 62% Median 13% Median 26%

Companies withaverage annualcontract values of$5k-$25k appearto have thelargestconcentration offast growers.Other groups aremore evenly split


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4 3

144

8

4

2

3

3

3

11

3

31

0

5

10

15

20

25

30

35

Internet Inside Field

Primary Mode of Distribution

NumberofCompaniesv


2009 Growth as a Function of Sales Strategy

Median 53%Median 20% Median 17%

Companiesemployingprimarily insidesales strategies(many of whomare in the $5k-$25k ACVcategory) havethe highestconcentration ofvery fastgrowers, thoughthere are clearlypockets ofsuccess amongother groups


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Analysis of the Slow Growers

Gross Churn

>15%

11%

10-15%

39%

5-10%

11%


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Analysis of the Fast Growers

Gross Churn

>15%

24%

10-15%

16%

5-10%

20%

45% Growth

Average Contract Value

$5-25K

57%

$25-100K

17%

>$100K

26%

Majority of Revenue From:

Other

41%

SMB

33%

Large

Enterprise

26%

Median $23k

Median $0.92Median 8%

Customer Acquisition Cost

$1.00

27%


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Go-to-Market


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Mode of Selling as a Function of ACV

Number of Companies in each group: $100k = 15.

As expected,primary mode ofdistribution ishighly correlatedwith averageannual contractvalue.Nonetheless,there areinterestingexceptions andgroups on theboundaries forexample, FieldSales is used fora number ofcompanies at thelow end

14% 11%

63%73%

14%

79%

21%7%

71%

11%

7%

11%5%

13%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

$100k

Median ACV

PrimaryModeofDistribution

v

Field Inside Internet Channel


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How Does Field Sales Perform for ACV of $25K-$100K?

Median Size (ARR)

$18M

$10M

$0M

$5M

$10M

$15M

$20M

Field Other

Median 2009 Growth

10%

23%

0%

5%

10%

15%

20%

25%

Field Other

Median Gross Churn

8%

11%

0%

2%

4%

6%

8%

10%

12%

Field Other

Median Cost of $1 New ACV

$1.15

$0.63

$0.00

$0.25

$0.50

$0.75

$1.00

$1.25

$1.50

Field Other

The group with$25k-$100k ACVis an interestingboundarygroup.Companiesemploying FieldSales here tend

to have lowergrowth andhigher customeracquisition costs


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How Much Do You Spend for $1 of New ACV?

Median $0.73

Number of Companies in each group: $1.00 = 2.

Customeracquisition costmetrics, with amedian of $0.73,implying a MagicNumber over 1.0,

appear to beabnormally low.Nonetheless,trends are stilldirectionallyinteresting

35%

16%

22%

24%

3%

0% 5% 10% 15% 20% 25% 30% 35% 40%

$2.00

% of Companies


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Amount Spent for $1 ACV by Mode of Distribution

Median $0.43 Median $0.89 Median $0.65

Number of Companies in each group: Internet = 12; Inside =24; Field = 27.

Customeracquisition costsappear to behighest for InsideSales, and lowestfor Internet.

Much broader setof customeracquisition costratios for FieldSales

21%

37%

17%

22%

8%

38%

11%

17%29%

22%

7%

58% 13%

0%

20%

40%

60%

80%

100%

Internet Inside Field

Primary Mode of Distribution

Spendper$1ACV

v

$2.00


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Cost Structure


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Median Cost Structure(1)

(1) Based on 2010 estimates.

ARR

$40M

Gross Margin 73% 84% 75% 70% 70% 72%

Op. Expense Margins:

Sales & Marketing 33% 42% 37% 31% 26% 25%

R&D 23% 23% 31% 16% 20% 20%

G&A 16% 18% 19% 11% 14% 12%

Op. Profit Margin 1% 1% (12%) 12% 10% 15%

No. of Companies 64 17 16 8 13 10

All

Companies

Cost structuresvary by companysize, as expected


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Anticipated Cost Structure at Scale

(1) Note: Survey describes scale as "e.g.", $50 million in revenues or higher."

Gross Margin 73% 77%

Operating Expense Margins:

Sales & Marketing 33% 27%

R&D 23% 17%

G&A 16% 12%

Op. Profit Margin 1% 21%

EBITDA 0% 18%

FCF 3% 18%

Growth Rate 34% 30%

Target Model2010E Median(1)Sources of costimprovements /operatingleverage areexpected to bederived across

the board


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Comparison: Historical Results of Selected Public Companies

~$100M

Median Run-Rate

~$25M

72%

60%

23%

15%

(26%)

(13%)

Gross Margin

Sales & Marketing

Research & Dev.

EBIT Margin

General & Admin.

FCF Margin

~$50M

68%

47%

19%

15%

(17%)

(4%)

70%

46%

12%

17%

(1%)

5%

Median includes ATHN, CNQR, CTCT, DMAN, KNXA, LOGM, N, OMTR, RNOW, SLRY, CRM, SFSF, TLEO and VOCS.~$25M median excludes ATHN, CNQR and RNOW.~$100M median excludes DMAN, LOGM, SLRY and VOCS.

Put in contextwith historicaloperating modelsof the publicSaaS players,the survey group

is spending a lotless on sales andmarketing thantheir public peersdid when theywere private andsmaller


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27% 28%

35%

41%

37%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

0% to 15% 15% to 30% 30% to 45% 45% to 60% >60%

2010E Growth Rate

MedianSale

s&MarketingSp

end

v

Sales & Marketing Spend vs. Projected Growth Rate

Median(1) 33%

(1) Bar reflects median sales and marketing spend across all companies.

As expected,faster growingcompanies arespending moreon sales andmarketing as a

percentage ofrevenues thantheir slowergrowing peers


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Median/Typical Contracts for the Group

ACV: ~$50K

Churn:

Gross: ~8%

Net (incl. up-sells): ~2%

Initial Contract Length

1 Yr.

5%

Qrtly to


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Contract Length as a Function of Contract Size

Number of Companies in each group:


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Payment Terms as a Function of Contract Size

Number of Companies in each group: 1 Yr in Advance


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What is Your Primary Pricing Metric?

Seats

50%

Usage/

Transactions

22%

Sites3%

DBsize

3%

Other

11%

Employees

11%

Number of Companies in each group: Seats = 30; Usage = 13; Employees = 7; Sites = 2; DB size = 2; Other = 7.

Seat countrepresents themost frequentlyused metric forpricing, though itaccounts for just

50%


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10%

11%

10%

4%

3%

0%

2%

4%

6%

8%

10%

12%

$250k


MedianGrossChurn

Churn as a Function of Contract Size

Median 8%

(1) Gross churn is on a dollar basis and does not include the benefit of upsells.

(1)

Median churnstatistics appearoverly optimistic,though againprovideinteresting

relative anddirectional data


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Churn as a Function of Contract Size Detail


$250k

30% 2 1 1 0 0 0

Median Gross Churn 8% 10% 11% 10% 3% 1%

Median Net Churn(1) 2% 7% 3%


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4%

10%

11%

5%

0%

2%

4%

6%

8%

10%

12%

Channel Internet Inside Field

Distribution Mode

Media

nGrossChurn

Churn as a Function of Primary Distribution Mode

Field Salesappears to havethe lowest churn;Internet andInside, thehighest

Median 8%


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Capital Efficiency


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Capital Efficiency Median Levels for the Group

Actual/expected time and investment reqd to reach:

ARR at which you expect to be FCF+: ~$18M

Years Investment$1M ARR 1.75 $5M

$5M ARR 3.25 $9M

$15M ARR 5.00 $17M

$40M ARR 7.50 $24M

The mediancompany in thegroup needed orexpects torequire $24M incapital and 7.5

years to grow to$40M ARR, andbecame orexpects to becash flowpositive when itreaches (orreached) $18M inARR


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Additional Funding Required as a Function of ARR

5

1

4

6

4

3

1

1

1

5

3

56

95

0

2

4

6

8

10

12

14

16

18

$40M

Current ARR

Add

itionalFundingR

equired(#ofCo's)

v

No Funding Req'd $1-$10M Req'd $10-$20M Req'd >$20M Req'dAs expected,most largercompanies donot require morecapital.Surprisingly, a

number ofsmallercompanies alsodont expect torequire much, ifany, either


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Analysis of Non-Funders

5

1

4

6

4

3

1

1

1

5

3

56

95

0

2

4

6

8

10

12

14

16

18

$40M

Current ARR

Add

itionalFundingR

equired(#ofCo's)

v

No Funding Req'd $1-$10M Req'd $10-$20M Req'd >$20M Req'd

1 shrank

3 grew 60%

3 grew 0-15%

1 grew 15-30%

1 grew 45-60%

1 grew >60%

3 grew 0-15%

4 grew 15-30%

1 grew 45-60%

1 grew >60%

Cross-referencing withgrowth suggestsdifferent attitudesregarding theneed to fund

growth

2010 P ifi C t P i t S S C S R lt


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Additional Funding Required as a Function of $ Raised

2

3

4

1

3

2

1

1

65

3

78

7

2

5

2

2

0

2

4

6

8

10

12

14

16

18

$50M

Money Raised So Far

A

dditionalFundingRequired(#ofC

o's)v

No Funding Req'd $1-$10M Req'd $10-$20M Req'd >$20M Req'd


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Expected Exit Scenarios

63%

22%

0%

10%

20%

30%

40%

50%

60%

70%

Exit by M&A Exit by IPO

%o

fResponden

tsDeemingScenario

Likely/H

ighlyLikely

63% ofrespondentsbelieve the M&Aexit is likely orhighly likely;22% believe the

IPO exit is



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Expected Exit Scenarios by Size of Company

Number of Companies in each group: $40M = 10.

82%

76%

63%58%

11%

0%

12% 13%

33%

70%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

$40M

Size of Company (ARR)

%o

fRespondentsDeemingSc

enario

Likely/HighlyLikely

Exit by M&A Exit by IPO

6 likely

1 highly likely

3 likely

1 highly likely



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Expectations Regarding Most and Least Likely Buyers

Wide variety ofopinionsregarding thelikely buyers inan M&A scenario

31%28% 26%

17%

-11% -13% -13%

-62%

-80%

-60%

-40%

-20%

0%

20%

40%

Larger SaaS Co. Trad'l License Co. Domain Expert Financial Buyer

Type of Buyer

%o

fRespondentsAssessment

ofLikelyBuyer

Most Likely Buyer Least Likely Buyer



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p y y

Profiles of Groups with Different Buyer Expectations

Rated SaaS Overall

Player #1 Buyer(1) Group

(Medians)

ARR $10M $15M

% with Horizontal SaaS Solution 75% 55%

% with SMBs and VSBsComprising Majority of Revenues 58% 44%

(1) 20 respondents rated SaaS companies their most likely potential buyers.

Rated Financial Overall

Player #1 Buyer(2) Group

(Medians)

Revenues $26M $15M

2010E Growth 38% 38%

2010E EBITDA 10% 0%

(2) 11 respondents rated financial players their most likely potential buyers.

Respondentswho believe thatthe most likelyM&A buyer is alarger SaaSplayer weretypically smaller,horizontal SaaS

players; thosewho viewedfinancial buyersmost likely werelarger and muchmore profitable



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Expectations Regarding M&A Purchases

30%

8%

0%

5%

10%

15%

20%

25%

30%

35%

Small Tuck-in Larger Acquisition

%

ofRespondents

Likely/HighlyLik

elyto

v

C

ompleteAcquisitioninNext12Months

v

Over one-third ofrespondentsexpect to pursuebuyside M&Aover the next 12months, with 8%

looking to dolargertransactions



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Pacific Crest Leadership in SaaS Selected Transaction Experience

$108,000,000 $295,000,000 Undisclosed Undisclosed

has been acquired by has been acquired by

has been acquired by has been acquired by

$135,300,000 $143,000,000 $53,123,733 $75,000,000 $213,900,000Filed: 3/26/10

RealPage IntraLinks Convio SciQuest SuccessFactors

(RP) (IL) (CNVO) (SQI) (SFSF)Co-Manager Co-Manager Co-Manager Co-Manager Co-Manager

Initial Public Offering Initial Public Offering Initial Public Offering Initial Public Offering Follow-On Offering

$86,250,000 $124,085,000 $66,000,000 $94,875,000 $68,827,500Withdrawn

ExactTarget SuccessFactors DemandTec Phase Forward Salary.com

(EXTG) (SFSF) (DMAN) (PFWD) (SLRY)Co-Manager Co-Manager Co-Manager Co-Manager Co-Manager

Initial Public Offering Initial Public Offering Initial Public Offering Follow-On Offering Initial Public Offering


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