SaaS in 2021: How prodigious growth changed the startup landscape permanently

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with plenty of capitalSaaS startups are not too concerned about how much runway they have left.

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According to OpenView’s Annual Financial and Operational Benchmark ReportOf the nearly 600 companies, only 13% named “burning too much cash” as one of their top three concerns, compared to 30% last year.

While 2020 was unusual and a rebound this year is not surprising, the report goes a step further, arguing that there is a growing gulf between the rich and not of B2B software.

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Nowhere is this more apparent when you look at public B2B SaaS companies, the authors claim. In an analysis accompanying the new report, those data show that some companies see their enterprise value increase much faster than the competition.

According to the report’s authors, the combination of a huge market, a compelling growth engine and excellent unit economics is helping top startups attract talent and capital, eschewing increasingly underperforming companies.

“Investors have forgotten all about the Rule of 40.” Open View Partners

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But what does this mean for founders who aren’t close to an IPO yet? And what benchmarks can they use to evaluate their performance? To find out, we spoke to two of the report’s lead co-authors, OpenView Vice President Sean Fanning and Operating Partner Kyle Poore. We also contacted Dale Chang, operating partner at Scale Venture Partners, which collects its own data through Stairs Studio, and to Matt Cohen From Canadian VC firm Ripple Ventures.

Our conversation covers some of the strategies SaaS companies can adopt to emulate their top peers — including product-based development and usage-based pricing, of which OpenView is a known advocate — as well as a The concern is: are the multipliers we’re seeing sustainable?

measuring up

If we were to retain only one chart from OpenView’s reports, it would be the benchmark table below, which shows some of the metrics and separates them based on respondents’ annual recurring revenue (ARR):

image credit: Open View Partners

A note to readers states that “each cell represents a company’s average performance, along with the range (bottom quartile and top quartile) of each metric on its respective ARR scale” with the middle in bold and the range in parentheses.

The authors note that “benchmarks are maps, not regions” and that “performance and evaluation are a multivariate equation.” Still, founders of a startup with an ARR between $1 million and $2.5 million can be pleased to see that growing 100% year over year means outperforming the average SaaS company in that category. But they’ll also note that top-ranked companies increase by about 300%.

all eyes on development

The average growth rate of SaaS businesses will already leave the average SMB in despair, but the performance of the top quartile is at a different level, especially for early-stage companies. Just look at this chart:

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