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SaaS Market Analysis

Market Analysis ·

Software is eating the world.  Here is the SaaS market by the numbers.

Click to View the Infographic  

 

The Data

For this article, we looked at data from Crunchbase.  We queried all companies tagged as SaaS, Software, or Apps.  If you want to explore the data yourself, check out one of Crunchbase’s premium subscriptions.

Disclaimer on the Data

Crunchbase is a crowdsourced database of company data.  The data skews toward success as entrepreneurs are not eager to publish their mistakes and it’s the last thing on the teams mind as the shutter a venture and start to look for their next opportunity.

That being said, it is a great source to identify rising trends among the market winners and is a source for the “rest of us” who may not be managing an investment portfolio with access to higher end tools.

 

Market Basics

52,000+
# Companies
that call themselves
SaaS, Software, or App
$200 BN+
Total funding
for these companies
to date

12% of SaaS companies eventually exit the market.  This is a higher than average success rate as startups go.

Most companies do not go past Series A, either exiting or winding down.

Rate of Market Entry

Thousands of companies enter the market every year, but the rate has been decreasing.  Tomasz Tunguz at Redpoint ventures confirms this trend in his blog.  

At the same time, fund raising has been picking up…

Rate of Exit

A run for the exit?  2016 saw TWICE as many SaaS companies exit as previous years.  Was it presidential jitters or stead momentum?  Tomasz Tunguz comments on the heavy M&A for 2016 as well.  

Valuations steadily increased from 2012 to 2017, with the exception of the mad rush in 2016.  In 2016, companies exited for HALF the valuation to investment ration of previous years.

$523 Million
Average Acquisition Price

Profile of a Successful SaaS Company

Not overfunded…

$23 Million
Average Total Funding for a SaaS Company that is Acquired
(Last 5 Years and throughout the 2000s)

Not too big…

Most SaaS companies acquired in 2016 had < 100 employees  

Nimble, not past prime…

Most SaaS acquisitions happened in the first $25 MM in funding. Almost 1,000 of SaaS acquisitions from 2012 – 2017 raised less than $10 MM.

Where is investment going?

 Where the growth is…

Logistics, Machine Learning, Health Diagnostics, Computer Vision, and Cloud Computing lead the way as hot growth categories.

Top 20 Categories for Investment in 2016

  • Logistics
  • Delivery Service
  • Enterprise Software
  • Machine Learning
  • Computer Vision
  • Health Diagnostics
  • Mobile
  • Cloud Computing
  • Hardware
  • Health Care
  • Analytics
  • Mobile
  • Messaging
  • Photography
  • Big Data
  • E-Commerce
  • Video
  • CRM
  • Customer Service
  • Business Intelligence

Where the Companies are…

The Bay Area leads in IPOs and Acquisitions in the space followed by New York, Los Angeles, Boston, London, and Washington DC.

What’s a SaaS Product Manager to Do?

Go LEAN or Go BIG.  To go for growth, find a company before its first $25 million in funding and first 100 employees.   Help it find its product/market fit.   If you’re looking for more stability, go for much larger companies with clear product/market fit established.  

Avoid the Deadzone.  There is a deadzone between $25 million and $100 million for fat startups who haven’t found their product market fit.  
Go for Growth Markets.  Companies in our top 20 categories are entering their growth phase.  Those are the hot fields to build expertise in.
Go for Growth Cities.  The Bay Area dwarfs other job markets in terms of opportunity for young career professionals and journeymen to ply their trade with 3x the opportunity of all other markets combined.  New York. Washington DC, and London are distant seconds.  There are plenty of success stories outside the Bay Area, though.  Every city boasts 25-50 exists over the past 10-15 years.  If you are a founder with the resources, you can build the next success story for your  home town.

Additional Reading

 

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