the software as a service (SaaS) landscape has seen an increase in the number of unicorns but some of the ratings saw a “hype” that would ultimately force a return to business fundamentals such as great products, enhanced customer service, and efficient go-to-market methods, according to a report by a venture capital firm. Bessemer Venture Partner.
SaaS metrics Annual recurring revenue (ARR) – is the right yardstick for business success, the report says, highlighting $ 100 million in ARR as a turning point in a SaaS company’s journey.
“At ARR $ 100 million, Centaur [denoting a new breed of firms having crossed $100-m revenue milestones] companies have a scalable market entry strategy suited to the product market and a growing customer base, ”according to the report.
Bessemer is strengthening its presence in India with a $ 220 million fund announced in November last year. Among Bessemer’s successful SaaS releases is Atlassian, the Australian provider of project management software with a market capitalization of $ 47.8 billion on Nasdaq.
Anant Vidur Puri, Bessemer’s partner, said the term “unicorn” has deviated significantly from its original coinage.
“If you look at where the public cloud multiples were 10 years ago, it was 10-11 times the ARR [valuing a SaaS company based on revenue], but last year it was much higher. This has had companies with an ARR of $ 20-30 million valued as unicorns, ”Puri said.
He added that there was nothing wrong with operating in that revenue bracket, but measuring startup success would be more reliable if it were based on actual revenue.
SaaS entrepreneurs agreed that they needed to redouble their focus on fundamentals like creating great product and customer service, but they totally disagreed with the end of its “hyped” ratings.
“Entrepreneurs must, however, go back to basics in terms of creating great products, gaining paying customers, making large enough margins and growing. These haven’t changed, “Suresh said founder-CEO of Kissflow and co-founder of the SaaS SaaSBOOMi community. “Experienced entrepreneurs do it anyway. If an entrepreneur is offered a 20x vs 10x multiple, what’s wrong with taking it? What is wrong is to rate a company solely based on valuation. A combination of metrics and first-principle assessments would be right, “he said.
SaaS companies, by nature, have solid business foundations: strong revenue visibility, the unitary economy, and predictable costs of customer acquisitions keep them in good stead, he said, adding that higher ratings should also be seen in the context of “some good companies chased by more investors”.
Recently, venture capital firm Chiratae Ventures and management consulting firm Zinnov released a report stating that Indian SaaS startups will grow at a compound annual growth rate (CAGR) of 55-70% this year for raise $ 116 billion in revenues.
According to the report, India’s SaaS landscape is expected to see the birth of more unicorns – or those startups with a valuation of $ 1 billion or more – given the reduced time a startup has to achieve unicorn status in recent years.