SaaS Valuations Revisit Record Highs

Morning Markets: Welcome to SaaS groundhog day, when modern software companies can again add a zero to their revenue to find their valuation.

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According to a key index, public SaaS companies are once again worth around ten times their revenue as their share prices recover from December’s disturbance.

The 10x figure is high by historical standards. For startups, the return to form is good news; higher public-market multiples for SaaS companies boost private market comps as venture investors measure younger companies up to their public siblings.

The valuation news isn’t the only good news for SaaS companies out today. The same SaaS-focused index is also testing record highs of its own.

10x, Again

Back in August of 2018, the companies that then made up the Bessemer Cloud Index posted a 10x revenue multiple comparing 2018 revenue against enterprise value of the companies counted. As we reported at the time, that figure fell to 8.2x when looking out into 2019.

Since then, as noted ad infinitum, Bessemer, a venture shop, rejiggered its cloud index in partnership with Nasdaq so that we can track it daily. This morning, two things stood out:

  1. The newly re-christened BVP Nasdaq Emerging Cloud Index set an all-time high of 1,074.72 points (Annoyingly, Yahoo Finance can’t load historical data for the index; Google gave up on its Finance tool as having a functional financial website was apparently too hard; MarketWatch doesn’t track the index so far as we can tell; and the Nasdaq site for the collection doesn’t have 52-week highs and lows. My god, Internet. Anyway, we hand-picked through historical data here.).
  2. According to the index’s homepage on the Bessemer website, it now sports a revenue multiple, using enterprise value instead of market cap, of 10.2x.

I have an email over to Bessemer asking for clarification on the multiple to confirm that it’s a trailing revenue figure instead of an ARR result. I’ll update when I hear back. Returning to the raw figure, we’re a bit higher than we were before, but I am loathe to say that the 10.2x figure is itself an all-time high; we’re close at least.

There is a connection between public market activity and the private market. It’s not perfect, but the rising valuations of public SaaS companies will do two things for startups in the space. First, it drives positive sentiment about SaaS startups as a group, making them more attractive as possible investments. And it also helps individual companies defend prior valuations and secure a higher worth in their next round.

As we noted last week, it’s hot times once again in SaaS. Eventually, a public market wobble will turn into a sustained public market correction, and then we’ll see what happens to SaaS when the seasons turn. For now, it’s back to summer.

Top Image Credit: Li-Anne Dias.

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